LCAV (MM)

Quest Diagnostics Inc. (DGX), a leading provider of diagnostic information services, announced its takeover of ConVerge Diagnostic Services, LLC from Water Street Healthcare Partners, one of the prime investors in the health care industry. However, the financial terms of the acquisition are yet to be disclosed.

The acquisition is part of the five-point strategy announced by the company in 2012. The strategies intend to strengthen DGX's foothold in the core diagnostic information services business, drive operational excellence, restore growth, simplify the organizational structure and deliver disciplined capital deployment. The company expects to grow 1%-2% through its strategically aligned acquisitions.

ConVerge Diagnostic is a regional leader in women's health with good repute for customer service, medical expertise and innovation. It provides clinical, cytology and anatomic pathology testing services to patients, physicians and hospitals in New England.

The addition of ConVerge Diagnostic is expected to synergize perfectly with the Quest Diagnostic's business portfolio. The acquisition will extend the range of diagnostic information services for DGX, facilitating greater accessibility of patients in the region and enhancing better patient outcomes in the long run. The transaction paves the way for both the companies to discover new medical innovations that can spur better patient outcomes.

ConVerge  Diagnostic is the fourth laboratory acquisition of Quest Diagnostics in 2013 and the second in Massachussets, after the Jan 2013 acquisition of UMass Memorial Medical Center's clinical and anatomic pathology outreach laboratory businesses in Worcester, MA.

Following the acquisition, ConVerge Diagnostic will become a wholly-owned subsidiary of Quest Diagnostics. Its laboratory in Peabody, MA, and its patient service centers currently functioning in Massachusetts, New Hampshire and Connecticut will operate as part of Quest Diagnostic's national laboratory network. Eventually the ConVerge laboratory will be integrated into the one-of-a kind laboratory facility being built by Quest Diagnostics in Marlborough, Mass.

Following the announcement of the five-point strategy, Quest Diagnostics has been rigorously trying to pursue it for robust organizational excellence. As a part of its plan to remain focused on the core diagnostic information services business, DGX has already divested its non-core assets, selling its OralDNA dental diagnostics, HemoCue diagnostic products, Ibrutinib royalty rights and Enterix colorectal-cancer product businesses. The divestments have generated gross proceeds of $800 million, which in turn, has propelled enhanced shareholder value.  

On the hand, the strategy of delivering an effective capital deployment is being affected through cautious acquisitions made by Quest Diagnostics in 2013 including the Tennessee-based toxicology and clinical laboratory business of Concentra, a Humana business, and lab-related clinical outreach operations of Dignity Health in California and Nevada.

Quest expects the ConVerge acquisition to be neutral to adjusted earnings per share in 2013. It, however, expects the transaction to be modestly accretive to adjusted earnings in 2014.

DGX currently carries a Zacks Rank #3 (Hold). Other stocks that are worth a look  include LCA-Vision Inc. (LCAV), LHC Group, Inc. (LHCG), each of them carries a Zacks Rank #1 (Strong Buy), and AmSurg Corp. (AMSG), carrying a Zacks Rank #2 (Buy). 

 
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