TORONTO - Two of Canada's largest medical lab operators will be combined under a $1.22-billion friendly takeover deal that narrows the competitive landscape and which the companies say will provide better patient care.
Assuming the deal receives all the necessary approvals, LifeLabs Medical Laboratory Services will pay $10.75 per share cash and assume $255 million of debt to acquire all of CML HealthCare Inc. of Mississauga, Ont. (TSX:CLC).
"We believe the arrangement is a compelling and transformative transaction that is in the best interest in all of our stakeholders," Thomas Wellner, President and CEO of CML HealthCare, said in a conference call with analysts Tuesday.
"The combined entity will also be better positioned to successfully navigate an increasingly challenging healthcare funding landscape. For patients and referring physicians, they will have continued access to an ever-broadening menu of specialized testing services in addition to the excellent quality laboratory standard tests offered today."
The deal is being supported by the boards of CML, LifeLabs and the Ontario Municipal Employees Retirement System, or OMERS, which owns LifeLabs through its Borealis Infrastructure arm.
CML shareholders, who would receive one more dividend payment before the deal closes, will be asked to approve the deal at a special meeting on Sept. 3. The transaction will also require regulatory and court approvals.
News of the takeover sent the company's shares soaring $3.40 to close at $10.60 on the Toronto Stock Exchange. The deal represents a 49.3 per cent premium to CML's closing price of $7.20 on Monday.
Wellner said he was confident the deal will receive all the necessary competition and regulatory approvals, but declined to specify whether those included any kind of provincial approval because of the consolidating effect it will have in Ontario.
"We'll have all the specific details outlined in the circular. They're very customary in nature, but there's also been a precedent transaction in British Columbia recently with LifeLabs," he said.
Wellner didn't describe the details of that deal, but noted the market share resulting from that transaction was larger than what the Ontario deal will yield.
When asked about the province's stand on the Ontario deal, Wellner simply said that CML had spoken to the government and was remaining "attentive to any concerns that the government would have, as we do through our normal course of operations."
"We have an excellent relationship with the Ontario government and we are very committed to continuing to maintain access and client service and high levels of quality as we have in the past," Wellner said.
Philippa Flint, an analyst with Bloom Burton
"We expect the newly combined company to increase operational efficiencies, have more government negotiating leverage and be able to expand nationally," she said in a note following Tuesday's call.
CML HealthCare Inc. has 112 client care centres in Ontario. It also has 82 imaging centres in Ontario and British Columbia but has been divesting its imaging business to focus more on its medical diagnostic labs.
LifeLabs serves about 10 million patients and nearly 20,000 physicians in Canada, mainly in Ontario and British Columbia.