Why Quidel Corporation Is Sinking

What happened

After the company announced that it is being sued by one of its customers, shares of Quidel Corporation (NASDAQ: QDEL), a maker of diagnostic testing equipment, fell 10% as of 3:45 p.m. EST on Monday.

So what

Quidel issued a press release today acknowledging that one of its customers -- Beckman Coulter, a division of Danaher (NYSE: DHR) -- plans to sue it; Beckman hopes to sell its B-type Natriuretic Peptide (BNP) assay products directly to customers instead of through Quidel.

Why is a lawsuit necessary for Beckman Coulter to pursue such an action? The reason is that Quidel currently holds an exclusive supply agreement with Beckman that prevents it from doing so (that supply agreement came from its recent deal with Alere, which is now a division of Abbott Laboratories).

As a result, Quidel's management team views Beckman's suit as "meritless" and plans to "vigorously defend its position."

Wall Street isn't thrilled with the news of an upcoming lawsuit, so it is understandable that shares are tanking today.

Now what

There's more to this story than meets the eye. In the press release, Quidel let investors know that it received a takeover offer from Danaher a few weeks ago. Quidel's board unanimously rejected the offer, calling the proposal "inadequate." This lawsuit might be a way for Danaher to seek revenge on Quidel for the rejection. It also might put pressure on Quidel's board to reverse the decision and agree to a sale.

What's next for Quidel from here? That's tough to say, since Danaher certainly possesses the resources to make this a long and drawn-out fight. This Fool plans to watch the drama unfold from the safety of the sidelines.

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.