Byron Capital analyst Douglas Loe is recommending shareholders of CML Healthcare (TSX:CLC) tender their shares to the offer from LifeLabs, which was announced yesterday and will take place in September, at a special shareholders meeting.
Yesterday, shares of CML leapt after announcing it had entered in an agreement with LifeLabs to sell itself for $10.75 a share, or $1.22-billion.
CML Healthcare CEO Thomas Wellner said the fit was a natural one.
“Our two organizations care about patients and helping physicians identify the right course of action for better health care outcomes,” he said. “So, in bringing the two companies together, we are fully aligned in our commitment to quality and continuous improvement in patient services in Ontario going forward. We are committed to transitioning seamlessly through our integration with LifeLabs, with a focus on operational excellence and providing the same level of quality service our clients and partners have come to expect.”
Loe says the offer from LifeLabs is an attractive one, and should have no major impediments to completion. Although he notes that the combined entity would have a more than 60% share of capped annual lab services revenue in Ontario, Loe says he sees no reason for the Canadian Competition Bureau to object to the deal, because the resultant company would have limited pricing flexibility under existing Ontario lab services fee agreements.
In a research update to clients yesterday, Loe changed his BUY rating and $8 target on CML Healthcare to a simple TENDER rating with no price target.
Loe says another bid could materialize, in particular from competitor Gamma Dynacare, but such a scenario is unlikely because the valuation of this one is at the top end of the range that he would consider reasonable.
At press time, shares of CML Healthcare were down 1.1% to $10.48.