Future Unsettled at Unilab After Acquisition by Quest By CARLOS MARTINEZ Staff Reporter The long protracted acquisition of medical testing company Unilab Corp. of Tarzana by New Jersey-based Quest Diagnostics is finally over leaving many questions as to what will happen at the local company. Last month the Federal Trade Commission approved the $674 million deal involving mostly stock after Quest agreed to sell off some of its labs in California after the commission expressed concern that the acquisition would impact competition. Joe Simons, director of the FTC’s competition bureau, said the merger would have hurt health care companies and consumers by creating a near monopoly in the medical testing market. “Their combination would have decreased competition and increased health care costs,” Simons said in a statement. Federal regulators and Quest had been haggling for months over ways for the company to divest itself of some assets in order to get approval for the merger. Unilab officials would not say what potential impact the deal will have on its operations. About 4,000 people work for the company at its 425 laboratories and service centers, including about 300 people who work at its Tarzana headquarters. As part of a compromise with regulators, Quest must sell some of its labs and other assets in Northern California to LabCorp for $4.5 million. Under that deal, Quest would sell 46 patient service centers, five rapid response laboratories and all of its Northern California contracts with physicians groups, including one Unilab contract. Quest spokesman Gary Samuels said the deal would not result in immediate layoffs at Unilab. But Robert Perente, an analyst with Leerink Swann & Co., said layoffs are likely as Quest attempts to streamline Unilab’s operations and eliminate redundant departments. Perente said the deal gives Quest a big share of the California market, but could also make LabCorp a major player by giving it some of Quest’s major labs and other assets in Northern California. “It will be a less crowded marketplace, but it will remain competitive,” Perente said. “The key to the deal was for Quest to divest itself of those assets and in doing so, it has eliminated a major competitor and kept the market competitive.” The acquisition was announced last April when it was valued at $900 million, but the FTC opposition forced Quest stock lower. On Feb. 26, Quest closed the sale by paying $297 million in cash plus exchanging its own shares for those of Unilab for $19.10 per share. The FTC said the deal would have damaged competition by combining the state’s two leading testing labs. The merger would have driven up prices to independent physician associations which depend on the rivalry between Unilab and Quest in order to keep costs low, the FTC said. Quest is the nation’s largest supplier of medical laboratory testing services, with revenue of about $4.5 billion last year. But it remained second in the state, next to market leader, Unilab, which reported $390 million in revenue in 2001. Unilab originally went public in 2001. For its last reporting quarter, ending on Sept. 30, Unilab posted net income of $8.4 million on revenue of $110.5 million, compared with net income of $1 million profit on revenue of $99 million in the year-earlier period. As part of the deal, Quest has acquired 39 so-called “Rapid Response” laboratories and 386 patient service centers. As a part of Quest, Unilab Chief Executive and Chairman Bob Whalen said Unilab will expand its research and development program. Unilab was founded in 1988 and contracts with independent physicians and physicians groups to conduct more than 1,000 different tests at more than 300 test centers throughout the state. Among the tests offered are glucose monitoring, HIV, and Hepatitis C.
