LabCorp To Acquire Covance For $5.6B

Laboratory Corporation of America^® Holdings (LabCorp^®) (NYSE: LH) andCovance Inc. (NYSE: CVD) today announced that they have entered into adefinitive agreement under which LabCorp will acquire Covance for cash andLabCorp shares currently valued at $105.12 per Covance share, or an equityvalue of approximately $6.1 billion and an enterprise value of approximately$5.6 billion. The combination will create the world's leading healthcarediagnostics company, capitalizing on LabCorp's industry leadership in medicaltesting and Covance's leadership in contract research. Under the terms of theagreement, which has been approved by the Boards of Directors of bothcompanies, Covance shareholders will receive $75.76 in cash and 0.2686 LabCorpshares for each Covance share they own. Covance shareholders will ownapproximately 15.5% of the combined company.The agreed price represents a 32% premium to Covance's closing stock price of$79.90 on October 31, 2014 and a multiple of approximately 13.3 timesCovance's EBITDA over the last 12 months through September 30, 2014. Excludingone-time costs, LabCorp expects the transaction to be accretive to adjustedearnings per share in 2015 before synergies. LabCorp expects to achieve annualcost synergies in excess of $100 million to be fully realized within threeyears of closing.LabCorp provides leading-edge medical laboratory testing and services througha national network of primary clinical laboratories and specialty testinglaboratories. Covance is the world's most comprehensive drug developmentcompany and a leader in nutritional analysis. Together, the combined companywill be the leading provider of medical testing as well as the premierfull-service drug development organization partnering with customers across abroad continuum from biopharmaceutical research to drug and diagnosticdevelopment to commercialization.Combination Will Drive Innovation and Efficiencies to Improve Physician andPatient OutcomesThe combined company will leverage technologies that improve patientrecruitment for clinical trials, enhance efficiency in the conduct of clinicaltrials, and deliver data faster to drug sponsors, physicians, and patients.Covance's innovative risk-based patient monitoring tools will significantlyenhance LabCorp's existing capabilities in predictive analytics, benefittingat-risk patients, risk-bearing physicians, and payors. The combined company'srange of innovative offerings will advance personalized medicine, improve thedevelopment of therapeutics, and enable its pharmaceutical customers torevolutionize drug commercialization. Additionally, the combined company willleverage the increased scale of its central laboratory operations andcollective data resources to drive greater R&D productivity for its clients.Combination Will Create New Sources of Revenue and Broaden Customer BaseThe combination of LabCorp and Covance will create new sources of revenue andbroaden the company's customer base. Revenue of the combined companies will bederived from managed care (32%), pharmaceutical and biotech companies (29%),commercial customers (22%), Medicare/Medicaid (12%), and private patients(5%). The combined company will have established relationships with all of thetop 20 pharmaceutical companies and an attractive payor mix.Combination Will Enhance Cash Flow to Fund Growth and Future Capital Returnsto ShareholdersOver the last 12 months through September 30, 2014, the combined business hadpro forma revenue of $8.4 billion, adjusted EBITDA of $1.6 billion and freecash flow of over $700 million. The combined company will have approximately20% of revenue derived from outside the United States. With strong and stablecash flow, additional payors and revenue sources, as well as superiorfinancial resources as a combined company, LabCorp will have a strong platformfor organic growth and acquisitions. The Company expects to maintain itsinvestment grade ratings with this acquisition. In addition, free cash flowwill be used to pay down debt quickly, providing future cash flow to returncapital to shareholders.LabCorp Chairman and Chief Executive Officer David P. King and LabCorp ChiefFinancial Officer Glenn A. Eisenberg will serve, respectively, as Chairman/CEOand CFO of the combined company. Covance Chairman and CEO Joe Herring willlead LabCorp's Covance division and report directly to Mr. King. LabCorp'sheadquarters in Burlington, North Carolina will be the corporate headquartersof the combined company and Covance's headquarters in Princeton, New Jerseywill be the operating headquarters for the Covance division, which willcontinue to do business under the Covance brand.Mr. King commented, “This transaction provides LabCorp with immediate scaleand a comprehensive market-leading platform in the $141 billionbiopharmaceutical research & development market, while at the same timeachieving the new sources of revenue, broader payor mix, and greaterinternational presence we have long pursued. Covance also has market accessand nutritional businesses that we view as great growth opportunities. Byjoining our highly compatible and complementary capabilities, the combinedcompany will be an industry leader in both the laboratory and CRO spaces,characterized by global scale, enhanced offerings, new efficiencies, broaderand deeper customer relationships, and a differentiated business model.Combining with Covance is fully aligned with our five pillar strategy andbroadens our portfolio consistent with our vision of being a trusted partnerto healthcare stakeholders, providing knowledge to optimize decision-making,improve health outcomes, and reduce treatment costs.”“As a combined company, we will be well positioned to respond to and benefitfrom the fundamental forces of change in our business, including payment foroutcomes, pharmaceutical outsourcing, global trial support, trends inpharmaceutical R&D spending, personalized medicine, and big data andinformatics,” added Mr. King. “Our increased cash flow will allow us to makean even greater investment in innovation, and we expect the combination ofrevenue growth from a broader platform, increased scale, synergies, andstrategic deployment of cash flow to create significant long-term shareholdervalue. I am excited to welcome Joe and his team to the LabCorp family and amconfident that together we can lead the healthcare diagnostics industry intothe future and deliver enormous value for all of our stakeholders.”“We are thrilled to join forces with another industry leader through atransaction that delivers to our shareholders substantial immediate cash valuealong with a meaningful stake in a combined company with exciting growthopportunities,” said Mr. Herring. “Covance generates more safety and efficacydata for the approval of innovative medicines than any other company in theworld, and LabCorp has longitudinal diagnostic data from more than 75 millionpatients. This combination leads the way to more cost-effective healthcare byimproving the safety and efficacy of drug therapies, enabling accurate patientdiagnostics, and advancing evidence-based medicines which will enable ourclients to substantiate the value of their products and services to patientsand payors. The result will be improved health outcomes and reduced treatmentcosts. LabCorp and Covance also share similar corporate cultures and values,and we are excited for our employees to benefit from greater opportunities aspart of a larger and more diversified global company.”The transaction is expected to close in the first quarter of 2015 and issubject to Covance shareholder approval, regulatory approvals and customaryclosing conditions. LabCorp intends to finance the cash portion of theacquisition through a combination of cash on hand (including Covance overseascash) and fully committed debt financing from BofA Merrill Lynch and WellsFargo Bank, NA.Lazard, BofA Merrill Lynch, and Wells Fargo Securities, LLC are serving asfinancial advisors to LabCorp. Sullivan & Cromwell LLP and Hogan Lovells areLabCorp's legal counsel. Goldman Sachs & Co. is serving as financial advisorto Covance, Cravath, Swaine & Moore LLP is its legal counsel and Covington &Burling LLP is serving as its antitrust counsel.Conference CallA conference call is scheduled today at 8:00 a.m. EST, which is available bydialing 877-280-4955 (857-244-7312 for international callers). The access codeis 93344352. A telephone replay of the call will be available through November10, 2014 and can be accessed by dialing 888-286-8010 (617-801-6888 forinternational callers). The access code for the replay is 69063469. A liveonline broadcast of the call will be available at http://www.LabCorp.com/ orat http://www.streetevents.com/ beginning at 8:00 a.m. EST. A slidepresentation may be accessed at http://www.LabCorp.com/ and will be availablefor download from the website prior to the conference call.