By Kirell Lakhman
LabCorp's plan to spend nearly $1 billion to buy Genzyme Genetics, which I covered last week, has spurred its share of headlines in the mainstream and trade press.
Now, predictably, at least one report is stirring some layoff speculation.
The news, which is reported from a strictly geographic perspective, says the planned acquisition "has left some local officials wondering what impact the move will have on Genzyme operations in [the] MetroWest" section of Boston. (Genzyme Genetics, which has 11 clinical labs worldwide, is based in Cambridge, Mass. Its lone clinical lab in the state is located in Westborough, which is less than an hour's drive west from Boston.)
The speculation, reported in today's Worcester Business Journal Online, claims that "[b]ecause of the similar nature of both companies," LabCorp may choose to "consolidate some of [Genzyme Genetics'] nine [US-based] laboratories and [their] 1,700 employees."
But the report, which quotes a Deutsche Bank analyst who tracks LabCorp, cautions that "locally, no one is sure what exactly [the proposed acquisition] will mean" for the Westborough facility (emphasis added).
Quoting Rod Jane, chairman of the Westborough Economic Development Committee, the WBJO report says, "[o]bviously we'd like to see them stay and grow that operation here."
But despite his hopes, Jane conceded that "if LabCorp does consolidate services … [the Westborough lab] could be a good location to do that."
It wasn't immediately clear how many staffers Genzyme Genetics employs in its Westborough lab — the entire Genetics division has 1,900 workers on its payroll — and Westborough Town Planner Jim Robbins was quoted as saying he "will be reaching out to LabCorp," according to the WBJO.
As I wrote last week, the proposed acquisition could increase LabCorp's reproductive, hem-onc, and other "esoteric … and personalized medicine" testing services. But perhaps more significant for LabCorp is that Genzyme Genetics has an outpost in Tokyo that includes a Division for Genetic Diagnosis.
Therefore the buy, which is expected to close by the end of the year, would give LabCorp its first clinical-testing presence outside the US. By comparison, its main rival, Quest Diagnostics, has a vibrant international presence.
The layoff speculation reported in WBJO was spurred by Deutsche Bank analyst Robyn Karnauskas, who said Genzyme Genetics, which made around $372 million in sales last year, or roughly 8 percent of its parent company's top line, "has been a drag" on Genzyme. (By comparison, LabCorp reported $4.7 billion in sales last year.)
It was also buttressed by a LabCorp SEC filing in which the reference lab said it plans to maintain a "certain salary level and benefits arrangements" for one year after the deal closes, and to provide "certain severance and other benefits" to Genzyme Genetics staffers (emphasis added).
Though the words "severance" and "benefits," especially in this context, can be ominous, a couple of facts cloud Karnauskas' conclusion.
True, Genzyme Genetics focuses on oncology and prenatal genetic testing: its genetic-testing capabilities include assays for ALK gene rearrangements in non-small cell lung cancer; BCR/ABL analysis by real-time PCR; FISH testing in multiple myeloma; EGFR amplification and mutation analysis; and KRAS testing in colorectal and other cancers.
And, yes, as Karnauskas points out, LabCorp is a general testing company. But it has also frequently stressed that one of its prime goals is to expand its esoteric play (see here, here, here, and here for the most recent examples).
All the more reason to keep Genzyme Genetics' labs intact as much as possible.
Another confounding fact is that when it announced its intent to buy Genzyme Genetics, LabCorp stressed it "is committed to offer employment to the unit's approximately 1,900 employees upon closing, including senior management."
Sure, most acquiring companies frequently make such claims, and many nevertheless decide to take an Exacto knife to the acquired firm's fatty "redundancies." (You have to love that euphemism.)
The WBJO report mentions this when it quotes Kevin Ellich, who covers LabCorp for the investment bank RBC Capital Markets. According to the report, "it's only natural to assume LabCorp will benefit from some efficiencies" after the deal wraps up.
"When I look at the financials of these two companies, there are probably some redundancies that can be reduced or removed," Ellich told WBJO. But the report is smart enough to note that job cuts "may not happen immediately."
For the record, WBJO also noted that LabCorp's SEC promise is "good news for the Genzyme employees in the near future," but said Ellich expects LabCorp to consolidate some of Genzyme Genetics' operations — which does not necessarily imply layoffs.
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