Laboratory Corp of America Holdings (LabCorp) said it has reached a cash and stock acquisition deal worth $6.1 billion with Covance Inc. The Burlington-based clinical laboratory network aims to grow into contract clinical trials.
When the transaction is completed, Covance shareholders will get $75.76 in cash plus 0.2686 LabCorp shares for each share they hold.
The $105.12 per share is 32% higher than Covance’s closing share price on Friday.
LabCorp, based in Burlington, North Carolina, operates one of the world’s biggest clinical laboratory networks, with 36 primary labs in the United States. Covance, headquartered in Princeton, New Jersey, provides drug development and animal testing services. It claims to be one of the biggest firms of its kind globally.
Covance’s services help drug makers reduce costs by doing away with the need to keep in-house laboratories.
LabCorp says it expects the deal to add to adjusted EPS (earnings per share) in 2015, excluding one-time costs, and lead to a $100 million reduction in costs within three years.
The corporate headquarters of the merged entity will be in Burlington, NC, and the Covance division will be based in Princeton, NJ.
David King, LabCorp’s current CEO, will be the CEO of the merged company. Joe Herring, Covance’s current chief executive, will head the Covance division and will report directly to Mr. King.
The two firms said they expect the transaction will be completed in Q1 2015.
The deal will be funded by debt financing from Wells Fargo Bank and Bank of America Merril Lynch, plus cash in hand.
“This transaction provides LabCorp with immediate scale and a comprehensive market-leading platform in the $141 billion biopharmaceutical research & development market, while at the same time achieving the new sources of revenue, broader payor mix, and greater international presence we have long pursued. Covance also has market access and nutritional businesses that we view as great growth opportunities.”
Mr. Herring said:
“We are thrilled to join forces with another industry leader through a transaction that delivers to our shareholders substantial immediate cash value along with a meaningful stake in a combined company with exciting growth opportunities. Covance generates more safety and efficacy data for the approval of innovative medicines than any other company in the world, and LabCorp has longitudinal diagnostic data from more than 75 million patients.”
Mr. Herring added that the two companies together will lead the way to more cost-effective healthcare by improving the efficacy and safety of drug therapies, evidence-based medicines and accurate patient diagnostics.
LabCorp’s financial advisers are Wells Fargo Securities LLC, Lazard and Merril Lynch, while its legal advisers are Hogan Lovells and Sullivan & Cromwell LLP.
Covance’s financial adviser is Goldman Sachs a & Co., and its legal advisers are Cravath, Swaine & Moore.