NEW YORK (GenomeWeb News) – Quest announced today a definitive agreement to sell its HemoCue business to Danaher's Radiometer Medical for about $300 million.
Separately, Fitch Ratings affirmed Quest Diagnostics' Issuer Default Rating at BBB+ after the close of the market on Friday.
Based in Cypress, Calif., HemoCue develops hemoglobin, glucose, and other point-of-care testing systems.
"The HemoCue divestiture, along with our sale of OralDNA in December 2012, demonstrates our commitment to refocus our business on diagnostic information services," Quest President and CEO Steve Rusckowski said in a statement. He added that the company plans to use proceeds from the sale to repurchase about $300 million of Quest's shares as part of its buyback program.
The deal is expected to close in March. Quest had announced its intention to sell HemoCue in January.
ISI Group analyst Ross Muken estimated in a research note that HemoCue generates about $115 million in revenues with a mid-single digit growth rate. He also noted that Quest paid about $420 million for HemoCue when it bought it from a private equity firm in 2007.
Jefferies' Jon Wood said believes the deal will be $.01 accretive to Danaher in 2013 and $.02 accretive in 2014 on a GAAP EPS basis.
In addition, Fitch last week affirmed Quest's IDR rating. It also affirmed the BBB+ rating for Quest's senior unsecured debt and its bank loans. The ratings apply to about $3.36 billion of outstanding debt.
In a statement, the ratings agency noted several key drivers, including a reduction in Quest's leverage to a stated target of between 2 times to 2.25 times, "a level Fitch considers to be consistent with the current rating category." It added that Quest has prioritized debt repayment and paid down $654 million in outstanding debt in 2012.
Fitch said it expects the company's debt load to stay steady through the long term, "assuming the company refinances coming maturities of $200 million in 2014 and $500 million in 2015."
Fitch said while Quest faces volume pressure from lower healthcare utilization trends and competition from hospitals that are doing more laboratory work in-house, the firm has embarked on efforts to support growth that includes the sale of the OralDNA and HemoCue businesses.
Fitch also cited a new operating strategy by Quest focused on diagnostic information services, a realignment of the sales function, and accelerating cost savings. In October, the company reorganized its business to reduce costs and improve operational efficiency.
Pointing to the success of a cost-savings program that Quest completed in 2010, Fitch said it believes the company "can extract sufficient expenses to sustain steady to slight improving operating margins, leading to EDITDA growth in line with to slightly outpacing topline growth."