LabCorp to Acquire Covance for Approximately $6.1 Billion, Creating World’s Leading Healthcare Diagnostics Company

Burlington, North Carolina-based Laboratory Corporation of America® Holdings (LabCorp®) (NYSE: LH) and Princeton-based Covance Inc. announce that they have entered into a definitive agreement under which LabCorp will acquire Covance for cash and LabCorp shares currently valued at $105.12 per Covance share, or an equity value of approximately $6.1 billion and an enterprise value of approximately $5.6 billion. The combination will create the world’s leading healthcare diagnostics company, capitalizing on LabCorp’s industry leadership in medical testing and Covance’s leadership in contract research. Under the terms of the agreement, which has been approved by the Boards of Directors of both companies, Covance shareholders will receive $75.76 in cash and 0.2686 LabCorp shares for each Covance share they own. Covance shareholders will own approximately 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 times Covance’s EBITDA over the last 12 months through September 30, 2014. Excluding one-time costs, LabCorp expects the transaction to be accretive to adjusted earnings per share in 2015 before synergies. LabCorp expects to achieve annual cost synergies in excess of $100 million to be fully realized within three years of closing.

LabCorp provides leading-edge medical laboratory testing and services through a national network of primary clinical laboratories and specialty testing laboratories. Covance is the world’s most comprehensive drug development company and a leader in nutritional analysis. Together, the combined company will be the leading provider of medical testing as well as the premier full-service drug development organization partnering with customers across a broad continuum from biopharmaceutical research to drug and diagnostic development to commercialization.

Combination Will Drive Innovation and Efficiencies to Improve Physician and Patient Outcomes

The combined company will leverage technologies that improve patient recruitment for clinical trials, enhance efficiency in the conduct of clinical trials, and deliver data faster to drug sponsors, physicians, and patients. Covance’s innovative risk-based patient monitoring tools will significantly enhance LabCorp’s existing capabilities in predictive analytics, benefitting at-risk patients, risk-bearing physicians, and payors. The combined company’s range of innovative offerings will advance personalized medicine, improve the development of therapeutics, and enable its pharmaceutical customers to revolutionize drug commercialization. Additionally, the combined company will leverage the increased scale of its central laboratory operations and collective data resources to drive greater R&D productivity for its clients.

Combination Will Create New Sources of Revenue and Broaden Customer Base

The combination of LabCorp and Covance will create new sources of revenue and broaden the company’s customer base. Revenue of the combined companies will be derived 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 the top 20 pharmaceutical companies and an attractive payor mix.

Combination Will Enhance Cash Flow to Fund Growth and Future Capital Returns to Shareholders

Over the last 12 months through September 30, 2014, the combined business had pro forma revenue of $8.4 billion, adjusted EBITDA of $1.6 billion and free cash flow of over $700 million. The combined company will have approximately 20% of revenue derived from outside the United States. With strong and stable cash flow, additional payors and revenue sources, as well as superior financial resources as a combined company, LabCorp will have a strong platform for organic growth and acquisitions. The Company expects to maintain its investment grade ratings with this acquisition. In addition, free cash flow will be used to pay down debt quickly, providing future cash flow to return capital to shareholders.

LabCorp Chairman and Chief Executive Officer David P. King and LabCorp Chief Financial Officer Glenn A. Eisenberg will serve, respectively, as Chairman/CEO and CFO of the combined company. Covance Chairman and CEO Joe Herring will lead LabCorp’s Covance division and report directly to Mr. King. LabCorp’s headquarters in Burlington, North Carolina will be the corporate headquarters of the combined company and Covance’s headquarters in Princeton, New Jersey will be the operating headquarters for the Covance division, which will continue to do business under the Covance brand.

Mr. King commented, “This transaction provides LabCorp with immediate scale and a comprehensive market-leading platform in the $141 billion biopharmaceutical research & development market, while at the same time achieving the new sources of revenue, broader payor mix, and greater international presence we have long pursued. Covance also has market access and nutritional businesses that we view as great growth opportunities. By joining our highly compatible and complementary capabilities, the combined company will be an industry leader in both the laboratory and CRO spaces, characterized by global scale, enhanced offerings, new efficiencies, broader and deeper customer relationships, and a differentiated business model. Combining with Covance is fully aligned with our five pillar strategy and broadens our portfolio consistent with our vision of being a trusted partner to 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 benefit from the fundamental forces of change in our business, including payment for outcomes, pharmaceutical outsourcing, global trial support, trends in pharmaceutical R&D spending, personalized medicine, and big data and informatics,” added Mr. King. “Our increased cash flow will allow us to make an even greater investment in innovation, and we expect the combination of revenue growth from a broader platform, increased scale, synergies, and strategic deployment of cash flow to create significant long-term shareholder value. I am excited to welcome Joe and his team to the LabCorp family and am confident that together we can lead the healthcare diagnostics industry into the future and deliver enormous value for all of our stakeholders.”

“We are thrilled to join forces with another industry leader through a transaction that delivers to our shareholders substantial immediate cash value along with a meaningful stake in a combined company with exciting growth opportunities,” said Mr. Herring. “Covance generates more safety and efficacy data for the approval of innovative medicines than any other company in the world, and LabCorp has longitudinal diagnostic data from more than 75 million patients. This combination leads the way to more cost-effective healthcare by improving the safety and efficacy of drug therapies, enabling accurate patient diagnostics, and advancing evidence-based medicines which will enable our clients to substantiate the value of their products and services to patients and payors. The result will be improved health outcomes and reduced treatment costs. LabCorp and Covance also share similar corporate cultures and values, and we are excited for our employees to benefit from greater opportunities as part of a larger and more diversified global company.”

The transaction is expected to close in the first quarter of 2015 and is subject to Covance shareholder approval, regulatory approvals and customary closing conditions. LabCorp intends to finance the cash portion of the acquisition through a combination of cash on hand (including Covance overseas cash) and fully committed debt financing from BofA Merrill Lynch and Wells Fargo Bank, NA.

Lazard, BofA Merrill Lynch, and Wells Fargo Securities, LLC are serving as financial advisors to LabCorp. Sullivan & Cromwell LLP and Hogan Lovells are LabCorp’s legal counsel. Goldman Sachs & Co. is serving as financial advisor to Covance, Cravath, Swaine & Moore LLP is its legal counsel and Covington & Burling LLP is serving as its antitrust counsel.

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