Laboratory Corp of America Holdings (LH.N) said it has no knowledge of any plans for a leveraged buyout of the company after a report that a private equity consortium was targeting the provider of medical testing services.
LabCorp's shares rose as much as 6 percent in early trading on Wednesday after M&A tracking service Mergermarket, citing sources, said a sponsor group consisting of at least two anchor investors was trying to assemble a financing package that would push the debt market's limits.
The No. 2 U.S. medical tests provider, which has a market value of $8.14 billion, said in a statement that it was not in buyout discussions.
"The report does not surprise us considering we have long thought that LabCorp might be a target because of its strong free cash flow generation and relatively stable business," Wells Fargo Securities analyst Gary Lieberman said.
"Perhaps the more likely implementation of healthcare reform was enough of a catalyst for a potential deal," he added.
The U.S. Supreme Court's recent backing of President Barack Obama's healthcare reform law means more Americans will now have health insurance and will be able to afford lab tests, and companies such as LabCorp and Quest are expected to gain.
The report did not identify the sponsors of the potential buyout, but named TPG Capital TPG.UL and Bain Capital as among the firms with the wherewithal to buy LabCorp.
LabCorp cut its 2012 revenue forecast last month as a shaky economy and an uncertain reimbursement environment led to fewer lab tests.
"We believe the strategic outlook for LabCorp remains promising since they are the low-cost provider; health care reform should drive incremental testing on top of the aging population and advancements in diagnostic testing presents a good long-term opportunity," Piper Jaffray analyst Kevin Ellich said.
The healthcare reform law, which requires most Americans obtain health insurance by 2014 or pay a tax, is expected to extend health coverage to more than 30 million uninsured Americans.
Several large deals have been struck in the medical diagnostics sector this year, including Agilent Technologies Inc's (A.N) $2.2 billion takeover of Danish cancer diagnostics firm Dako and Hologic Inc's (HOLX.O) $3.75 billion acquisition of Gen-Probe Inc (GPRO.O).
Recent PE-backed healthcare deals include TPG's plan to buy U.S.-based Par Pharmaceutical Cos Inc (PRX.N) for $1.9 billion and Carlyle Group CYL.UL and Hellman & Friedman's purchase of U.S. contract research firm Pharmaceutical Product Development for $3.9 billion.
LabCorp's shares, which have fallen 10 percent since the company posted second-quarter results last month, closed up nearly 5 percent ay $87.90 on Wednesday on the New York Stock Exchange.
(Reporting by Esha Dey in Bangalore; Editing by Viraj Nair and Saumyadeb Chakrabarty)