Conor's avatar
$21.4m follower assets
$LH Labcorp Spin Off Opportunity!
Laboratory Corporation of America announced last Thursday that they will be spinning off their clinical development business tax-free to shareholders.

This is an exciting opportunity for investors who want to take advantage of the valuation discrepancy while it's still around.

Labcorp is currently made up of two businesses: clinical diagnostics and clinical drug development. Clinical diagnostics can be valued very similar to Quest Diagnostics which is the largest competitor to Labcorp and is very similar to Labcorp's diagnostics business.

Labcorp's EV/EBIDTA multiple is 9.39 and Quest's $DGX is 9.80

This literally does NOT add up, since Labcorp has embedded in its business a contract research organization, formerly Covance, that should be trading at a much higher multiple. A similar CRO is $IQV IQVIA Holdings which has an EV/EBIDTA multiple of 16.68!

Using logical sense, you would think Labcorp would be trading at 9.39+16.68/2= around a 17 EV/EBIDTA multiple, however, it's trading at 9 which is basically valuing Labcorp as if their CRO business is non-existent.

This is exactly why Adam Schechter CEO of $LH plans to spin off their CRO business sometime in mid-2023 tax-free.

A prudent investor could take advantage of this valuation discrepancy by investing in $LH before the spin-off at a lower multiple.
delos's avatar
there’s prob a term for this kind of trade. reverse merger arbitrage? arbitrage-off 😂
Josh Kohn-Lindquist's avatar
Joel Greenblatt's "You Can Be a Stock Market Genius" comes to mind here. I love these type of situations.

Already keep an eye on $MEDP which is a CRO for small biopharma, but will now need to look at $LH too.
Conor's avatar
@joryko Wow! $MEDP has a 21 EV/EBIDTA multiple. This is great news for $LH when they spin off their CRO business