Laboratory Corp. of America Holdings has agreed to buy Covance Inc. for about $6.1 billion to add contract research services for drug companies to its offering of medical diagnostic tests, the companies announced Monday.
Covance manages clinical trials and other aspects of development for drugmakers including Indianapolis-based Eli Lilly and Co. and Sanofi, which increasingly outsource such work.
Princeton, New Jersey-based Covance has major laboratory operations in Indianapolis and Greenfield that employ about 1,500 people.
The company acquired Greenfield Labs from Lilly in October 2008 for $50 million and a 10-year agreement from Lilly to use Covance’s services. The company announced a $150 million expansion in 2012 that was expected to create an additional 465 jobs in Greenfield by the end of 2022.
Covance holders will receive cash and stock valued at $105.12 a share, the companies said in a written statement. That’s 32 percent above Covance’s closing price Oct. 31.
The company's shares soared 25.3 percent in Monday morning trading, to $100.10 each.
Buying Covance will give LabCorp new sources of revenue and broaden its customer base, the companies said.
“This transaction provides LabCorp with immediate scale and a comprehensive market-leading platform in the $141 billion biopharmaceutical research and development market,” said David King, chairman and chief executive officer of Burlington, North Carolina-based LabCorp. Joe Herring, chairman and CEO of Covance, will lead the division and report to King.
The purchase will add to adjusted earnings per share in 2015, and LabCorp expects cost savings of more than $100 million a year within three years of completion of the deal, it said.
Lazard, BofA Merrill Lynch, and Wells Fargo Securities LLC advised LabCorp. Sullivan & Cromwell LLP and Hogan Lovells are LabCorp’s legal counsel. Goldman Sachs & Co. is serving as financial adviser to Covance, Cravath, Swaine & Moore LLP is its legal counsel and Covington & Burling LLP is serving as its antitrust counsel.
The transaction probably will close in the first quarter of next year, according to the statement. Including net debt, the deal values Covance at $5.6 billion, the companies said.