LabCorp to pay $6.1 billion for drug trial company Covance

Mon Nov 3, 2014 2:53pm EST
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(Reuters) - Laboratory Corp of America Holdings (LH.N: Quote) said it would pay $6.1 billion for Covance Inc CVD.N, which carries out trials for drugmakers, as its diagnostic services business faces pressure from reimbursement cuts.

Covance's shares jumped 25 percent to $100.28, nearing LabCorp's offer price of $105 per share. LabCorp shares fell 8 percent to $100.38 as one analyst questioned how quickly cost savings could be achieved.

Oppenheimer's Bret Jones said cost savings that support the rationale for the deal seem to be longer term and lack a clear path.

The cash-and-stock deal allows LabCorp to expand into the fast-growing contract clinical trial market, add to its existing central labs business and benefit from Covance's presence outside the United States.

LabCorp and larger rival Quest Diagnostics Inc (DGX.N: Quote) have been grappling with cuts in reimbursement rates for certain diagnostic tests and fewer tests being ordered.

"For LabCorp, the last few years have been challenging with regards to volume and price perspective," Evercore ISI analyst Michael Cherny said.

"And so to diversify away to a more pharma-related customer base will help mitigate some of those risks in the long term."

Covance's drug development outsourcing services help pharmaceutical companies cut costs by eliminating the need to maintain in-house laboratories.

Covance shareholders will receive $75.76 in cash and 0.2686 LabCorp shares for each share held. The offer represents a premium of 32 percent to Covance's closing price on Friday. [ID:nBw30RdTXa]   Continued...