Quest Diagnostics is on the prowl for another acquisition

November 12, 2009 by MassDevice staff

The New Jersey-based test provider plans a $750 million debt offering to retire shorter-term obligations; remaining funds tabbed to swing a possible deal for another diagnostics firm.

Quest Diagnostics Inc. (DGX) is considering the cash acquisition of another diagnostics business in a deal potentially worth $225 million.

The prospective purchase by Madison, N.J.-based Quest was disclosed in preliminary offering documents filed Nov. 12. According to the prospectus, the bulk of the money raised through the proposed $750 million debt offering would be used to refinance notes issued to complete Quest's $1.2 billion acquisition of AmeriPath Inc. two years ago.

The cash tender offer for 5.125 percent senior notes coming due next October and 7.50 percent notes due in 2011 began immediately Thursday, with the company expecting to wrap up the bidding by Nov. 19.

Quest is currently carrying just under $3 billion in debt, including about $465 million in senior notes coming due in 2010 and 2011. Assuming successful completion of the offering, Quest executives estimated the company would owe a total of $3.25 billion in long-term obligations, including $1.1 billion under a bank term loan maturing in May 2012.

Through the first nine months of 2009, Quest reported $547.5 million in profits, up 33 percent from the comparable year-ago period, on $5.6 billion in revenues. Interest expense so far during 2009 totals $503.8 million, or about $39 million above the same span in 2008.

Acquisitions are responsible for fueling much of Quest's growth since the company's split from Corning Inc. (GLW) in Dec., 1996. It purchased the clinical laboratory business from drug maker SmithKline Beecham plc (GSK) for $1.3 billion in 1999 and swung three other deals for firms providing point-of-care testing — HemoCue, Focus Diagnostics and Enterix — worth nearly a combined $650 million since 2006.

AmeriPath largely expanded cancer research capabilities at Quest, adding dermatopathology, anatomic pathology and molecular diagnostics to its oncology practice. The acquisition of Focus Diagnostics, meanwhile, proved timely, providing the company with the tools to bring the first commercially available test for the H1N1 Swine Flu virus earlier this year.

Quest officials did not identify the target it's considering acquiring.