LabCorp, Orchid Test DNA - Analyst Blog
07 Avril 2011 - 9:00PM
Zacks
Laboratory Corporation of America Holdings (LH)
has decided to acquire Orchid Cellmark (ORCH) for
$2.80 per share in cash or a total $85.4 million. The offer price
represents a 37.31% premium on the closing price of the share as on
April 5, 2011.
After taking into account Orchid Cellmark’s cash balance
LabCorp’s net payable comes to $65.6 million. The transaction is
expected to complete by the second quarter of 2011. Orchid Cellmark
provides DNA testing services targeted towards forensic and family
relationship applications on a global basis.
Based on this deal, LabCorp will be able to develop a command
over identity testing in the US and also establish its presence in
this field in the UK. The company derives 64% of its revenues from
core routine tests. The company also provides specialty testing
services in the areas of allergy, clinical trials, diagnostic
genetics, identity, forensics, infectious disease, oncology and
occupational testing, which accounted for the remaining 36%.
For the past few quarters, LabCorp has been trying to increase
the contribution of this specialized testing. The company has
undertaken some acquisitions to achieve this objective such as
Monogram Bioscience (August 2009) and Genzyme Genetics (December
2010). LabCorp has set a target of recording 45% of its revenues
from this specialty business in the next 3-5 years.
On the liquidity front, LabCorp is quite well capitalized. The
company exited fiscal 2010 with cash and short-term investment of
$230.7 million ($148.5 million at the end of 2009) and $460 million
under revolving line of credit.
The company has been using its cash balance to make strategic
acquisitions as well as reward its shareholders through share
repurchase programs. Cash flow trends of the company remain robust
with free cash flow for 2010 at $757.5 million compared to $747.7
million in 2009. LabCorp is confident that free cash flow will help
record a healthy increase in 2012-2013 as Genzyme Genetics starts
contributing to the bottom line.
LabCorp continues to focus on strategic initiatives to drive
growth and profitability. However, the tough competitive landscape
is of primary concern, and the leading diagnostic players are all
striving for a greater share in the high margin, specialized
testing business.
In this regard, Quest Diagnostics (DGX)
recently acquired Athena Diagnostics, which is focused on
diagnostic tests for neurological conditions and is also in the
process of acquiring Celera Corp (CRA).
We are currently Neutral on LabCorp, which also corresponds to
the Zacks #3 Rank (Hold) in the short term.
CELERA CORP (CRA): Free Stock Analysis Report
QUEST DIAGNOSTC (DGX): Free Stock Analysis Report
LABORATORY CP (LH): Free Stock Analysis Report
ORCHID CELLMARK (ORCH): Free Stock Analysis Report
Zacks Investment Research
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