Covance ($CVD) got some bad advice when it agreed to a roughly $6 billion buyout from LabCorp ($LH), according to an investor lawsuit, which alleges that chief dealbroker Goldman Sachs had a conflict of interest all along.
In a lawsuit filed in Delaware, investor Bary Berk says Goldman was already representing an unnamed company targeted by Covance when the CRO hired the firm to take a look at the LabCorp deal, Bloomberg reports. That created an unfair situation, Berk says: If Covance made a buy of its own, it could fend off LabCorp's advance, but that would spell a smaller windfall for Goldman. And the prospect of higher profits--the firm is due about $40 million in fees if the LabCorp sale goes through, according to Berk--tainted Goldman's advice, the suit claims.
Berk is requesting a judge block the closure of the deal, expected to wrap up next year, until the two parties provide more details about how it came about, according to Bloomberg. None of the companies are commenting on the suit.
LabCorp's big idea behind the deal hinges on marrying its expansive capabilities in diagnostics with Covance's share of the drug development market, ideally creating an industry-leading entity that can support a candidate therapy from its preclinical inception to well past its market debut. Through decades of running safety and efficacy trials and diagnostic tests, the two companies have amassed longitudinal data on millions of patients, and the pair says its merger will help clients of all stripes make more informed decisions and pave the way for more cost-effective healthcare.
That's an attractive proposition for LabCorp, which has watched declining reimbursement and mounting competition cut into its testing revenues over the past year. The company took up a sweeping reorganization in 2012, promising to diversify its revenue streams and cut extraneous spending. LabCorp has been on an M&A kick ever since, buying its way into prenatal testing, genomic sequencing and, now, outsourced drug development.
And while it's unlikely the shareholder suit will nix the acquisition, any delay will make it harder for LabCorp to complete its revenue turnaround on the promised timeline.
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