LabCorp Completes $1.2-Billion Chiltern Buyout, Boosts CRO

Laboratory Corporation of America Holdings (NYSE:LH) or LabCorp recently announced the successful closure of the acquisition of Chiltern International Group Limited, a specialty CRO (contract research organization). Earlier, the company had entered into a definitive agreement with Chiltern’s shareholders to purchase the company for an all-cash transaction valued at roughly $1.2 billion.

LabCorp expects Chiltern to generate 2017 revenues of roughly $550 million and adjusted earnings before interest, taxes, depreciation and amortization of around $95 million. Excluding transaction related one-time costs and cost synergies, LabCorp expects this deal to boost adjusted earnings and free cash flow in the first year and help earn cost of capital by the third year.

Post acquisition, Chiltern will form part of LabCorp’s Covance Drug Development segment. Per management, Chiltern will be a major partner serving the top 20 biopharma segments and helping LabCorp focus on the high-growth emerging and mid-market biopharma segments. Per LabCorp, the buyout is expected to strengthen its position in innovative diagnostics and drug development solutions.

We encouragingly note that the new combined entity will have approximately 11,100 employees in the Americas — 7,100 in Europe, the Middle East and Africa, and 2,400 in the Asia Pacific.

LabCorp has been consistently on the headlines owing to the Chiltern buyout deal. Earlier, the company had announced that the Federal Trade Commission (FTC) has granted its request for early termination of the waiting period for Chiltern’s buyout under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act).

Moreover, apart from the substantial buyouts like Covance, LabCorp has been consistently enhancing and adding capabilities via strategic mergers. In this regard, the company recently announced plans to acquire the analytical testing services business of ChromaDex Corporation (NASDAQ:CDXC) . The company also announced the renewal and extension of agreement with Interpace Diagnostics Group, Inc. (NASDAQ:IDXG) aimed at boosting its cancer portfolio.

Moreover, over the last three months, LabCorp has been trading above the broader industry. Over this period, the stock has rallied 12.6% as against the industry’s 2.6% decline. We believe the Chiltern buyout will help the stock scale higher.

Zacks Rank & Key Pick

LabCorp carries a Zacks Rank #3 (Hold). A better-ranked medical stock is Edwards Lifesciences Corporation (NYSE:EW) sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has rallied roughly 26% over the last six months.

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