By Michael Fitzhugh
Genzyme (GENZ) is selling Genzyme Genetics, its genetics testing unit, to LabCorp, a leading lab test company, for $925 million. The divestiture, paired with a global workforce reduction announced Friday, is a key part of Genzyme's plan for slimming and strengthening the company as it parries Sanofi's (NYSE:SNY) attempts to acquire it for $18.5 billion—a figure Genzyme has rebuffed as too low.
The sale “allows us to focus our resources on core growth areas and create stronger returns on invested capital,” says Genyme's CEO and chairman Henri Termeer. It may also generate proceeds to finance a $2 billion stock buyback the Cambridge, Massachusetts company has planned.
LabCorp CEO David King says he expects the acquisition will help substantially expand his company’s central lab capabilities for reproductive, genetic, hematology-oncology and clinical trials-related testing.
The acquisition will provide LabCorp with nine new labs that conduct more than 1.5 million clinical tests annually when the deal closes. Many of those labs are in big cities, such as Los Angeles, making them an ideal match for LabCorp’s goal of growing its presence in metropolitan areas—especially in California, where it has historically been underrepresented.
Genzyme Genetics’ network of board-certified geneticists and genetic counselors, including many with infertility and prenatal genetic counseling expertise, could also help support other LabCorp businesses. On June 16, it acquired a clinical laboratory in Indianapolis that it says has a strong specialized women’s health offering. LabCorp is also becoming part of the reference lab network for Empire Blue Cross Blue Shield, New York's largest insurer by medical membership, an opportunity which Genzyme Genetics' New York testing lab could help support.
The acquisition will cost LabCorp about $795 million, net of expected income tax benefits, less acquisition-related expenses.
Genzyme Genetics booked $371 million in business during 2009. LabCorp expects to offer jobs to the unit’s 1,900 employees, including its senior management team, it says.
About 10 percent of the Genyme’s other employees will not be so lucky. The company plans to cut about 1,000 jobs as it tries to curb its operational costs following a string of manufacturing mishaps and a related $175 million fine levied by the U.S. Food and Drug Administraton.