GE Healthcare acquisition of Abbott Diagnostics deal scrapped: Who could be the next buyer in line?
CNN, the Chicago Tribune and Medical Device Link have just announced that the $8 Billion deal for GE Healthcare to acquire Abbott Diagnostics has been scrapped.
In my blog posting commenting on the GE - Abbott deal soon after it was announced (see: What’s More Important in Medicine: Diagnostics, Therapeutics or Prognosis – 2/5/07?), I recognized that this potentially was a great win-win situation for both sides. For more details on why - please see feel free to read that blog posting back from this February.
At that time, I also pointed out that the potential challenge for the deal was Abbott's decision to not divest of the molecular diagnostics unit. Abbott management probably (and correctly) estimated that molecular diagnostics would likely have a higher intrinsic growth potential than the other diagnostic units banking, of course, on the rise of personalized medicine and associated genomics technologies as well as more potential synergies with the core pharmaceutical business with respect to pharmacogenomics.
Very importantly, that article also pointed out that in order to have made this really work both companies should further advance the informational (e.g. IT) aspects around diagnostics and move beyond simply the chemistry and analytics. This was particularly important for GE Healthcare as it could leverage its own healthcare IT capabilities in order to “uncommoditize” the diagnostics services it was to have acquired. It is possible that the lack of the molecular diagnostics component made this strategy problematic for GE at least for the price that was being paid. Basically, the following scenario may have unfolded as the negotiations unfolded:
- GE realized that not having Abbott’s molecular diagnostics unit would have compromised their vision of integrating their health IT competencies with diagnostics
- The hospital-based marketing synergies were not enough to justify the price.
- The hospital-based marketing synergies were not enough to justify the price.
- Hence, GE likely then went back for a lower price given that the whole package that they wanted wasn’t being delivered.
- Abbott balked.
- I wonder who originally advised GE on the acquisition? Did they really know what they were talking about?
Who could thus be a potential buyer? To this end, a very strong IT company of some sort whose main core competency and mission revolves around information and who wants to get into healthcare may be a such a candidate to pick up the pieces after GE. Obviously, this potential suitor would need to have a lot of money.
Crazy as it sounds: Should Google (or one of its affiliates) be interested? Google already has a stake in a small biotech company called 23andMe which is co-founded by Anne Wojcicki (Sergey Brin’s wife) and got some play in the San Francisco Chronicle “Now Google is grooming a biotech firm” and other media outlets. Yesterday’s Midwestbusiness.com also had an article “Battle Between Google, Microsoft Could Trigger Health Care Revolution” which portends a coming healthcare information battle between Google and Microsoft. Either party acquiring Abbott diagnostics would probably give that company a substantial advantage in any clinical facing functionality to their developing product lines.
So … it may not be such a crazy idea. Google nearly knows everything about your desktop; they may also want to know everything about what’s inside your body as well.
Ogan Gurel, MD MPhil
gurel@aesisgroup.com
http://blog.aesisgroup.com/
Convergent Medical Technology Convergent Medical Technologies Combination Medical Products GE Healthcare Abbott Diagnostics Personalized Medicine Genomics Pharmacogenomics Aesis Research Group Ogan Gurel MD
I've learned from some inside sources that one of the reasons for the scrapped deal was the very extensive outsourcing relationships and contracts that Abbott Diagnostics had which made the integration extremely challenging.
That's quite an interesting piece of information to the extent that it has important implications for the partnership strategies that have been discussed extensively in this blog.
Partnerships as “poison pill”
To the extent that such partnerships create difficulties for others to execute on strategic acquisitions and in this regard a strong partnership strategy is not just a way of creating barriers to competition (e.g. the Microsoft / OEM model) but also a veritable "poison pill" to stave of hostile takeovers.
On the other hand, if your strategy is to be ultimately be acquired, a strategy engaging multiple, interdependent partnerships while helping to build business may not be a good idea.
This is yet another reason why the Chief Partnership Officer is not just a “business development” role but strikes to the very core of corporate strategy – whether or not a partnership model is integral to the organization.
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