Labcorp demerger of clinical development business: LH spin-off date and details in full
15:06, 24 August 2022
A North American life sciences company is splitting part of its business into a separate listed company, in hopes of unlocking shareholder value as it focuses on core operations.
Tracing its origins back to 1905, Laboratory Corporation of America (Labcorp) is a life sciences company with over 75,000 employees, providing diagnostic and other services to clients in more than 100 countries.
LabcorpIn 2021, Labcorp reported revenues of $16.1bn (£13.7bn, €16.2bn). It was added to the S&P 500 in 2004.
Spin-off
LabcorpLate last month the company announced plans to spin off its clinical development operations into a stock exchange-listed entity, with Labcorp retaining its core lab testing business.
The spin-off – intended to qualify as a tax-free transaction for US federal income tax purposes – is expected to be completed in the second half of the year, subject to regulatory approval.
Labcorp“Our shareholders will be able to participate in the upside potential of two market-leading businesses in the global healthcare sector, each of which will be well-capitalized and positioned to generate sustainable growth with strong free cash flows and attractive returns,” Labcorp chairman and CEO Adam Schechter said in a press release.
“Our customers will continue to have access to our full range of capabilities with the same quality and seamless delivery of services they have come to expect from our teams.”
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Activist pressure
Labcorp said its management team and board continued to evaluate all avenues to further enhance stakeholder value after its decision to start paying a dividend and speed up its stock repurchase programme last year.
The proposed transaction also follows pressure from activist investor Jana Partners, which took a $192m stake in Labcorp last year and had been pushing for corporate change including a spin-out of non-core business operations.
Adam Schechter will continue to lead Labcorp as chairman and CEO while the executive leadership and name of the spun-out Clinical Development business will be determined and announced in the future.
Labcorp said that the two separate businesses will be positioned to advance innovation to meet distinct customer needs and deliver next generation solutions, while also driving sustainable growth with strong free cash flow and attractive returns for investors.
Clinical Development
LabcorpThe Clinical Development business, acquired in 2014 when Labcorp bought Covance for $5.6bn, is a global contract research organisation which provides Phase I to IV clinical trial management and technology solutions to pharmaceutical and biotechnology companies.
Pharma companies often reduce drug development costs by contracting-out certain services to contract research organisations.
The business reported total revenues of $3bn for the year to 30 June and is expected to deliver high-single-digit revenue growth in the future, as it had a compound annual growth rate of 8% from the second quarter of 2019 to the second quarter of 2022.
Q2 earnings
At the same time as the proposed spin-off, Labcorp reported second-quarter adjusted earnings of $4.96 on revenues which fell 3.7% to $3.7bn.
Analysts had been expecting adjusted earnings of $4.70 on revenue of $3.75bn, according to figures widely available on financial news sites.
LabcorpLooking ahead, Labcorp said it expects full-year earnings per share in the range of $19.00 to $21.25 compared to its prior guidance of $18.25 to $21.00.
Investors will get an update on the business when Labcorp reports third-quarter earnings in October.
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