Labcorp Spinoff Notes

November 22, 2022 Update

Here are some new updates from management on the spinoff:

Albert J. William Rice Crédit Suisse AG, Research Division – Research Analyst

You mentioned that you accelerated the time frame a bit on the spin-off, and that’s working toward progress there. What are the big milestones? I guess, naming a CEO would be one. What’s the updated time frame and thought on that? But — is there any other things that we should keep an eye on?

Adam H. Schechter Laboratory Corporation of America Holdings – President, CEO & Chairman

Yes, yes. So we did announce that we [moved the] time frame up. We accelerated it. Originally, we said it was going to be the end of next year. We’ve now said it will be the middle of next year. And the reason we were able to do that is we established a spin realization office. We have full-time employees. We brought in some external consultants that have done many spins before. We developed a very thorough time line. And based upon everything, we feel confident that we can hit the middle of next year, of course, with the customary approvals and so forth that you need.

I’m working on Board, working on CEO, other management things. I would expect there to be announcements in the coming months on those things. And then at the same time, we’re going to have to make sure that it’s tax-free, the spin is tax-free. So we have to get consultations done. We have to do filings. And I think a lot of that is what’s going to be the rate limiting step for us to launch the new company.

Albert J. William Rice Crédit Suisse AG, Research Division – Research Analyst

How about just — there are some filings you will make, and you’re not spinning off the entire Drug Development division. So there is interest on — would central have been — the stuff you’re retaining versus the stuff you’re spinning off, when will some of that financial disclosure likely come out?

Glenn A. Eisenberg Laboratory Corporation of America Holdings – CFO & Executive VP

So first, yes, the spin is just for the clinical business. Adam said the time line that we’re doing, and to your point, we need a private letter ruling with the IRS. That’s underway as well as the SEC review of the Form 10. So all the things that we can effectuate are in motion to get done.

Ultimately, we’ll look at segment reporting, if that’s kind of — post spin when the clinical business is on its own, and the remaining will be our Diagnostics, our early development research labs and our central labs business. So we’ll look at the segmentation.

Currently, we’re also — because we only report margins on a Drug Development segment basis, we will provide 3 years of audited financial numbers, if you will, for the clinical business before we file the Form 10. So the investors will be able to see not only the historical revenue growth but also the historical margins of the business fully burdened, including the burden for the public company costs.

Obviously, the remaining Labcorp business will have the same, and we’ll talk through the profitability and potentially any changes to our segmentation. But at this point, all we’re looking at is effectuating the clinical spin.

Albert J. William Rice Crédit Suisse AG, Research Division – Research Analyst

So if the spin is done July 1, when does some of that filing that — I’m sure that doesn’t happen until we’re well into ’23. But is there — do you know when that…

Glenn A. Eisenberg Laboratory Corporation of America Holdings – CFO & Executive VP

That’s right. So a lot of it is what are we filing that won’t be public versus ultimately what will be publicly disclosed to our investors. So we’re well underway for preparing all the information, again, by, frankly, when you think about just a limiting factor of 3 years of audited financials, which will include 2022, we won’t have the audit for the stand-alone business for ’22 until the early part of ’23, so call it February. So we’ll be well underway.

And as Adam said, once we’re further along, for each facet where we can provide more information that’s meaningful to investors, we’ll be providing it as we go forward.

August 24, 2022 Update

  • Good article which lays out the rationale for the spin-off
  • Author’s SOTP analysis suggests $307 price target (+28%) vs. current price of $239

August 9, 2022 Update

Labcorp has announced it will spinoff its Clinical Trial Business in the second half of 2023