Diagnostics & Imaging Week Associate

Diagnostic testing giant Quest Diagnostics (Lyndhurst, New Jersey) reported that it has signed a definitive agreement to acquire LabOne (Lenexa, Kansas) in a deal valued at $934 million.

The proposed deal has been unanimously approved by both companies’ boards of directors.

Quest will acquire all outstanding common shares of LabOne for $43.90 a share in an all-cash transaction. The deal value also factors in assumption of $132 million of LabOne’s convertible debt.

Quest said in a statement that it expects the deal to generate synergies of about $30 million a year after integration of the companies is complete, expected to occur within two years of closing.

The companies didn’t say whether the transaction will lead to layoffs or how it will otherwise affect LabOne’s Kansas City-area operations.

Quest said it expects to finance the transaction through cash on hand, available credit facilities and public debt.

LabOne provides health screening and risk assessment services to life insurance companies, as well as clinical diagnostic testing services to healthcare providers and drugs-of-abuse testing to employers.

It reported revenues of $468 million for the year ended Dec. 31, 2004, and has 3,100 employees at facilities in Lenexa, Cincinnati and Lee’s Summit, Missouri.

“This acquisition will generate significant synergies, solidify our leadership position in diagnostic testing by expanding access for physicians and patients, and strengthen our drugs-of-abuse testing business,” said Surya Mohapatra, PhD, chairman and CEO of Quest Diagnostics, during a conference call on the deal. “In addition, it will establish us as the leader in a new, testing-related business, providing health screening and risk assessment services to the life insurance industry.”

Mohapatra said that during the past 18 months, his company has been focusing on enhancing its organic growth, moving away from its traditional service orientation toward a larger focus on sales and science.

He said that when the company looked at LabOne, “our goal was not to just buy a laboratory but also to meet our three key drivers of growth.”

The first goal was to satisfy the company’s position in various geographical areas were it had been lacking.

Mohapatra also noted that the deal gives his company “a new market which we want to bring our core competencies [to] and help LabOne.”

The company said that LabOne’s Chairman and CEO, Thomas Grant, will join Quest, and lead the combined businesses serving the life insurance industry and employers.

The transaction, which is expected to be completed in 4Q05, is subject to the satisfaction of customary conditions, including LabOne shareholders’ approval and regulatory clearance.

Analysts appeared to be mostly upbeat about the deal.

In a note to clients, SG Cowen (New York) healthcare providers analyst Kemp Dolliver said Quest’s purchase price seems fair, as LabOne shares are expected to return low double-digit growth in earnings per share.

He added that the deal would bring Quest extra business in life insurance testing, an area in which it has not led the market.

“The deal fits strategically, though some holders likely prefer share buybacks,” Dolliver wrote. “Quest enters the life insurance testing market with a leading position.”

In other dealmaking news:

• Philips Medical Systems (Andover, Massachusetts), a division of Royal Philips Electronics (Amsterdam, the Netherlands), reported that it has completed its $280 million acquisition of Stentor (Brisbane, California), a provider of picture archiving and communication systems (PACS).

Philips first disclosed its intention to acquire Stentor last month (Diagnostics & Imaging Week, July 14, 2005).

The acquisition is designed to strengthen Philips’ position as a primary supplier of technology to the healthcare information technology (HIT) market. As a result of this acquisition, Philips said it now ranks globally as the No. 2 supplier of PACS.

“We are convinced that Stentor and its people are a great asset to Philips and our customers,” said Jouko Karvinen, CEO of Philips Medical Systems. “We are [now] able to offer a complete and integrated portfolio from diagnostic imaging and monitoring to departmental IT solutions and enterprise IT to our customers. In addition, it will help us become an even better partner for healthcare organizations.”

• Ostara (Wernersville, Pennsylvania) reported that it has acquired majority control of Rheologics (Exton, Pennsylvania), a company studying the dynamics of blood flow and its impact on vascular-related and other diseases.

Rheologics’ breakthrough product, the Rheolog, is the first device capable of generating a comprehensive rheologic profile for use at the bedside or in clinical laboratory settings to measure the viscosity of blood.

Ostara said it has successfully acquired more than 90% of Rheologics’ shares. The company also said it believes that with this acquisition it is poised to become “a major force in the preventative diagnosis and treatment of cardiologic and other vascular disease.”

Ostara said it plans to use the Rheologics acquisition to help drive the company toward emerging medical technologies.