Mergers & Acquisitions and Competition and Public Companies and Roche Diagnostics and Lawsuits and Health Care & Life Sciences and Life Science & Biotech and Law

Roche aims to prevent bidding war for software firm

January 7, 2011

Roche Diagnostics Corp. has sued to stop a bidding war for a company it thought it already had a deal to acquire.

The Swiss company, which operates its North American business out of Indianapolis, filed a lawsuit late last month against Virginia-based Medical Automation Systems Inc. for breaching the purchase agreement the companies signed back in October.

The two companies have developed software over the past 15 years to accompany blood glucose monitors Roche sells to hospitals and health care providers.

Roche struck a deal Oct. 12 to pay $38 million, technically to acquire Medical Automation’s software, and also agreed to forgive $1.9 million in debt.

But then the company got a better offer, according to Roche’s lawsuit. On Oct. 21, Alere Inc. offered $38.5 million to buy all of Medical Automation’s stock. The next day, Alere raised its offer to $40 million.

In November, Medical Automation shareholders voted to reject Roche’s purchase agreement in favor of Alere’s.

Roche fought back in two ways. It moved to launch an arbitration hearing in New York and also matched Alere’s offer, saying it was exercising a right of first refusal that had been part of a 2006 contract between Roche and Medical Automation.

That contract, which guarantees Roche’s exclusive right to Medical Automation’s software, expired on Dec. 31.

According to Roche’s lawsuit, Medical Automation said it would request competing bids this week from both Roche and Alere, and then pick the one it liked best.

Roche filed its lawsuit in federal court in Indianapolis, seeking a preliminary injunction to stop Medical Automation from soliciting competing bids.

“Roche contends it effectively exercised its right of first refusal to purchase MAS,” Roche attorneys wrote in their lawsuit, referring to Medical Automation Systems by its initials. “In fact, it negotiated for its first right of refusal to avoid just the sort of bidding war MAS intends to initiate.”

Medical Automoation has yet to respond to Roche’s suit in court. A call to one of its attorneys was not immediately returned.

Roche and Medical Automation began working together in the mid-1990s, according to Roche’s lawsuit. To help develop the software, Roche loaned the company more than $10 million over that time, in addition to paying license fees.

The companies first discussed a merger in early 2008, but talks broke down that summer because Medical Automation’s owners, Gregory Menke and Kurt Wassenaar, wanted more than Roche was willing to offer.

Talks resumed in 2009 and eventually led to the deal in 2010.

Medical Automation’s software, known as RALS, is used in Roche’s Accu-Chek and CoaguChek blood monitors. The software allows blood test results from several patients at once to flow easily into a hospital’s electronic medical record system.

“The acquisition of RALS assets is a perfect fit with our strategy to deliver market-leading IT connectivity solutions. It further complements our IT product portfolio,” Peter Finckh, Roche Diagnostics’ head of global platforms and support, said in October.

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