One down, two to go

LabCorp enters into definitive agreement to acquire Genzyme Genetics, one of three business units that Genzyme is aiming to offload

Jeffrey Bouley
BURLINGTON, N.C.—Laboratory Corp. of America Holdings(LabCorp) announced this fall that it entered into a definitive agreement toacquire Genzyme Genetics, a business unit of Cambridge, Mass.-based GenzymeCorp., in an all-cash transaction valued at $925 million. Net of expectedincome tax benefits, less acquisition-related expenses, the acquisition has a netcash cost to LabCorp of approximately $795 million.
 
"Genzyme Genetics is among the premier genetics and oncologylaboratories in the United States. It has an excellent clinical reputation, atrack record of growth and innovation and outstanding people," says David P.King, chairman and CEO of LabCorp. "This acquisition will substantially expandour capabilities in reproductive, genetic, hematology-oncology and clinicaltrials central laboratory testing. The acquisition of Genzyme Genetics providesus with an unprecedented opportunity for revenue growth in our key strategicfocus areas of esoteric testing and personalized medicine."
 
 
Genzyme Genetics performs more than 1.5 million testsannually, with reported revenue in 2009 of approximately $371 million, rangingfrom maternal serum screening and prenatal diagnostics to carrier screening andpostnatal testing services.
 
 
The goal is to close the deal before the end of the year,subject to customary closing conditions set forth in the agreement, including theexpiration or early termination of the waiting period under theHart-Scott-Rodino
 
Antitrust Improvements Act of 1976.
For its part, LabCorp boasts annual revenues of $4.7 billionin 2009, more than 28,000 employees worldwide, and more than 220,000 clients,offering clinical assays ranging from routine blood analyses to HIV and genomictesting.
 
 
Although the sale of the Genzyme Genetics business unitcoincides closely with the recent overtures by sanofi-aventis to acquireGenzyme—an effort that recently went hostile—the divestment of Genzyme Geneticsdoesn't appear to be a direct response to sanofi's plans to buy Genzyme. Backin May, the company had announced a series of strategic moves, including buyingback $2 billion dollars worth of its stock, largely with proceeds to be gainedby ridding itself of three businesses that are not part of its core operation. 
 
Genzyme Genetics was pretty much on the bidding floor atthat point, along with Genzyme's diagnostics and pharmaceutical intermediatesbusinesses.
 
 
As Genzyme CEO Henri Termeer said at the time, "As weevaluated our company to create a mix of businesses that will deliversustainable growth and stronger returns on invested capital, it became clearthat these businesses do not fit within this strategy."
 
With the sale of the genetic testing unit presumably behindit, Genzyme has indicated that it is still on track in its plans to sell thediagnostic products and pharmaceutical intermediates units.
 
In other Genzyme news, the company also announced that itwould cut some 1,000 jobs—about 10 percent of its workforce worldwide—by 2012.
 
 
That job-cutting move by Genzyme may have a more clearconnection, though still indirect, to the sanofi-aventis takeover attempt, asGenzyme CEO Henri Termeer told employees in a memo that, "The recent takeoverproposal reinforces how important it is to take control and maximize the valuewe bring to patients and shareholders."
 
 
Whether the precise timing of the layoff announcement isrelated to sanofi's actions or not, a Genzyme spokesperson said in Septemberthat the cuts would have happened even in the absence of interest fromsanofi-aventis' merger and takeover actions.
 
Speaking about the sale of the Genzyme Genetics unit,Geoffrey Porges, an analyst with Sanford Bernstein & Co., told Bloomberg that sanofi may now feel pressures by the sale ofthe unit to increase the amount of its offer to acquire Genzyme, which has notyet budged from the $69 per share that sanofi originally proposed.
 
"Genzyme is making it clear they're not sitting aroundwaiting for sanofi to raise their bid," he said.
 
If so, that hasn't been the case so far, as sanofi has beencontent to wait and see if shareholders will bite on the $69-per-sharelure—particularly since there were no rival bidders for Genzyme. Also,sanofi-aventis' CEO, Chris Viehbacher, made it clear in an Aug. 30 conferencecall that the Genzyme Genetics unit wasn't a major focus in the acquisitionbid.
 

Jeffrey Bouley

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