Big Vegas lab operator selling for $500 million

Monday, Feb. 11, 2002 | 10:58 a.m.

SUN STAFF AND WIRE REPORTS

TETERBORO, N.J. -- Quest Diagnostics Inc., the largest provider of medical laboratory tests, agreed to buy American Medical Laboratories Inc. for $500 million to expand its specialty and genetic testing services.

AML, the third-largest medical- and drug-testing lab in the country, operates the dominant network of medical laboratories and testing clinics in the Las Vegas area.

AML is based in Chantilly, Va., but its Las Vegas presence, which includes 40 patient testing clinics and five testing laboratories with a total of 1,300 employees, is the larger operation. The largest Las Vegas lab, at 4230 Burnham Ave., also serves as an administrative center and employs 800 people.

The company conducts lab testing for physicians, medical tests for hospital labs and employee drug testing from urine and hair samples. The company's hair sample testing techniques are considered to be at the forefront of drug-testing technology.

Quest spokesman Gary Samuels said the acquisition of AML, announced Friday, offers two growth opportunities for his company -- the expansion of esoteric testing programs for the whole operation as well as a geographic expansion into the state of Nevada.

Quest, which has 1,300 patient service centers around the country, conducts more than 100 million patient tests a year and provides results for more than 2,000 hospitals, has facilities in Denver and in suburban Los Angeles, but nothing in Nevada.

"This gives us a presence in the fastest-growing state in the nation," said Samuels, who said there are no plans to close clinics or lay off personnel in Las Vegas.

AML merged with Associated Pathologists Laboratories of Las Vegas in 1999 and was renamed AML/APL Inc., keeping the AML identity in Nevada. In 2001, the company adopted the AML name.

The $500 million acquisition price includes the assumption of $160 million in debt. Quest, based in Teterboro, N.J., will gain full-service laboratories in Las Vegas and Chantilly and 51 patient clinics.

As part of the transaction, closely held AML, which has about $300 million in annual sales and had announced a public offering of stock in November, will acquire affiliate LabPortal Inc., which connects labs with health-care providers on line.

"It's a strategically and financially positive move for them," said U.S. Bancorp Piper Jaffray analyst William Bonello, who rates the stock a "strong buy" and doesn't hold the shares.

Specialty and genetic tests, unlike simple blood and urine analysis, are sophisticated procedures that can't be done by most hospitals and doctors, and are a fast-growing area with high profit margins, Bonello said.

Examples of gene-based tests include those that measure the virus level in HIV and hepatitis C patients, hormone testing and cystic fibrosis tests for expectant parents to determine if the fetus is at risk, Samuels said.

Quest expects the purchase to boost earnings by about 2 cents to 3 cents a share during the first year, Chief Executive Officer Kenneth Freeman said on a conference call. Analysts polled by Thomson Financial/First Call expect the company to earn $2.87 a share in 2002.

Quest said the acquisition, its sixth in more than three years, according to Bloomberg data, would allow it to speed the delivery of test results.

The announcement was made after U.S. markets closed. Quest shares rose 31 cents to $67.65.01

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