Merged lab firm would dominate Ontario market

Two of Canada’s largest medical diagnostics laboratory operators — LifeLabs Medical Laboratory Services and CML Healthcare Inc. — are joining forces in a friendly $1.22-billion takeover deal, a move that would make the new company the dominant player in Ontario.

As part of the acquisition, which is subject to approval, LifeLabs would assume $225-million of Mississaugabased CML’s outstanding debt and pay $10.75 per share in cash, the companies said Tuesday. That represents a 49.3% premium on its closing price of $7.20 on Monday, CML added.

Thomas Wellner, chief executive of CML, said the amalgamation of the “two strong businesses” would allow them to leverage their capabilities across both organizations to “increase our scale and also expand our retail footprint nationally.”

“The combined entity will also be better positioned to successfully navigate the increasingly challenging health care funding landscape,” he told analysts on a conference call. “For patients, and referring physicians, they will have continued access to an everbroadening menu of specialized testing services, in addition to the excellent-quality laboratory standard tests offered.”

CML’s stock rose 47.4% on the TSX on Tuesday and closed at $10.61 per share — the highest level since April last year.

The deal has the “full support” of the board of directors of both companies and the price offered is “fair” and “in the best interest” of shareholders, Mr. Wellner said. The acquisition has the approval of the Ontario Municipal employees Retirement System (OMeRS), which owns LifeLabs through its investment arm Borealis Infrastructure.

The deal would make LifeLabs the “dominant player” in Ontario with two-thirds of the market, said Philippa Flint, a health-care analyst with Bloom Burton & Co. in Toronto.

“We expect the newly combined company to increase operational efficiencies, have more government negotiating leverage and be able to expand nationally,” she wrote in a research note to clients Tuesday.

Mr. Wellner said he believed the transaction would “move forward and achieve all the necessary regulatory and competition bureau requirements,” but did not specify whether it would require Ontario approval, due to the major foothold LifeLabs would attain.

When asked for details on CML’s prior discussions with Queen’s Park, Mr. Wellner said it had spoken to the Ontario government and “we are attentive to any concerns that the government would have.”