Laboratory Corporation of America Holdings, a major provider of healthcare diagnostic services, announced it has struck a cash and stock deal with Covance Inc. to add contract research services to its portfolio.
LabCorp said the deal is valued at $105.12 per Covance share, which represents a 32% premium to the companys closing price on October 31, or $75.76 in cash and 0.2686 LabCorp shares.
After the news that Covance will be acquired for $5.6 billion, the companys share price rose 25% on Monday to match the premium.
LabCorp also stated that this purchase will give the company new sources of revenue and expand its customer base. Covance has been benefiting from the increased outsourcing of clinical trials and medicine developing aspects, in which the New Jersey-based company specializes. LabCorp plans for Covances current CEO and chairman, Joe Herring, to lead the division after the deal is closed.
“This transaction provides LabCorp with immediate scale and a comprehensive market-leading platform in the $141 billion biopharmaceutical research and development market,” said David King, chairman and CEO.
The combined company is expected to derive around 5% of its revenue from private patients, 12% from Medicaid or Medicare, 22% from commercial customers, 29% from pharmaceutical and biotech companies and its biggest source of revenue to be managed care, up to 32%.
LabCorp said the combination would “create the worlds leading healthcare diagnostics company, capitalizing on LabCorps industry leadership in medical testing and Covances leadership in contract research.”
The deal is expected to close in the first quarter of 2015 and LabCorp expects it would help with more than $100 million in cost savings a year within three years of completion.
In the recent quarter Covance reported profit of $66 million, a 33% increase compared to last years $44.2 million, while LabCorp reported slightly better-than-expected third-quarter earnings and revenue.
Laboratory Corporation of America Holdings gained 1.77% on Friday and closed at $109.29 in New York. On Monday the stock plunged 7.47% to trade at $101.07 at 15:43 GMT, marking a one-year decrease of 1.03%. The company is valued at $9.28 billion. According to CNN Money, the 21 analysts offering 12-month price forecasts for Laboratory Corporation of America Holdings have a median target of $113.00, with a high estimate of $130.00 and a low estimate of $87.00. The median estimate represents a +11.80% increase from the last price of $101.07.