Westcliff Medical Laboratories Inc., a Santa Ana-based medical laboratory that’s undergoing bankruptcy reorganization, is planning to sell its assets to competitor Laboratory Corporation of America.
In a court filing, Westcliff said that it is working on a deal to sell its assets to Burlington, N.C.-based LabCorp for $57.6 million, pending a bankruptcy judge’s approval.
Westcliff filed for bankruptcy protection in late May.
The laboratory, which processes blood and urine samples, announced the pending deal to clients in a letter from Chairman Robert Whalen posted on its website.
“As much as Westcliff has valued its 40-year history as a community-based independent laboratory, we believe that pursuing this transaction is the right decision at the right time, for our clients and their patients and for our employees and their families,” Whalen said.
Westcliff has 170 sites throughout California and some 1,000 workers, according to its filing.
Thirty of those locations—both labs and service centers—are in Orange County. The filing didn’t break down workers here.
Westcliff asked the bankruptcy court to expedite the proposed sale of its assets to LabCorp in one of its filings. The laboratory said it was critical to expedite the sale “because of a severe risk of a deterioration” of Westcliff’s business resulting from the bankruptcy filing.
LabCorp has not issued an official press release about the deal and a company spokesman said he couldn’t comment because it hasn’t been finalized.
Westcliff didn’t respond to a request for comment.
In a research note, Tom Gallucci, an analyst with Lazard Capital Markets LLC in New York, said that Westcliff was a bargain—the purchase price is about 60% of its 2009 revenue of $97 million.
The company was hit by the general economic malaise during the past few years as it tried to keep its costs low for clients despite its high operating expenses.
Westcliff said in court papers that it lost $13 million on revenue of $97 million in 2009.
Westcliff said in a filing that it owed some $56 million to a group of lenders for which GE Business Financial Services Inc., a unit of General Electric Co., was acting as agent.
The laboratory said that it hasn’t been able to make payments to its lenders and that it was only able to survive financially during the past 17 months because GE Business Financial gave it emergency funding “to cover payroll and other vital expenses.”
Analyst Gallucci expects the sale to a larger company will help offset some of the standard expenses and return the company to profitability.
“Scale is vital in this high-fixed-cost business, (so) we anticipate that West-cliff’s absorption by a major player like (LabCorp) can help turn around margins,” he said.
Westcliff said in its filing that it’s been trying to sell itself since early 2009. It hired MTS Health Partners LP, a New York investment bank, as an adviser to assist in the sale.
‘A Sad End’
A story in Dark Daily, a website that reports laboratory and pathology news, referred to the tentative sale of Westcliff to LabCorp as “a sad end” to its life as an independent medical laboratory.
Westcliff was acquired in 2006 by BioLabs Inc., which was created by Boston-based private equity firm Parthenon Capital Partners.
At that time, BioLabs consolidated Westcliff with a Burbank laboratory, Health Line Clinical Laboratories, under the Westcliff name.
There were bumps in the road afterward.
Dark Daily’s article said contrasting corporate cultures and business philosophies between Westcliff and Health Line, which was more aggressive with price discounting, “proved to be troublesome for the new owners.”
Long-term debt holders of Westcliff eventually used a debtor-in-possession clause to assume control of the company prior to the bankruptcy filing, according to Dark Daily.
LabCorp should increase its share of California’s $2 billion medical laboratory market to about 15% through the buy of Westcliff and Diamond Reference Laboratory, a smaller operation in Diamond Bar, said Gallucci.
Quest Diagnostics Inc., a New Jersey-based company that operates Quest Diagnostics Nichols Institute in San Juan Capistrano, leads the California medical laboratory market with 25% to 30% market share, Gallucci said in his note.
LabCorp has been a part of the OC medical laboratory scene for some years. Back in 2005, it spent $155 million for US Labs Inc., a cancer testing laboratory in Irvine.
