Nichols Agrees to Buy Medical Research Firm : * Acquisition: The San Juan Capistrano company will take over London Diagnostics of Minnesota in $12.7-million, all-stock buyout.

Nichols Institute said Thursday that it has agreed to acquire London Diagnostics, a research and development firm that is a leader in the use of chemically produced light for medical testing.

Terms of the $12.7-million all-stock deal call for London’s shareholders to receive newly issued non-voting Nichols common stock for their London shares.

Nichols officials said the acquisition will make its medical testing operation more competitive because it will gain access to the latest technology in the field of chemiluminescence--creation of cold light through chemical reactions.

It is similar to the type of light emitted by a firefly, said Frank Taylor, president of Nichols’ diagnostics division.

London Diagnostics, located in Eden Prairie, Minn., was founded in 1985 to develop ways to use chemiluminescence to help detect diseases. The techniques also can be used in drug testing--to detect illegal chemicals in the body.

While chemically produced light technology has been around for some time, it has only been since the mid-1980s that its potential for medical testing has been recognized.

The London acquisition “puts us in a very competitive position,” Taylor said. “They are a leader in the field. We’re buying it because of the talent that resides there.”

London Diagnostics is a privately held company whose customers have included preeminent hospitals such as Massachusetts General, Johns Hopkins, the University of Minnesota and Cedars-Sinai, as well as the National Institutes of Health and Walter Reed Army Medical Center.

The firm had revenues of $1.7 million in the fiscal year ending March 31, 1991, Taylor said.

Nichols earlier this week reported 1991 revenue of $236.3 million and said its earnings for the year dropped by almost 51% to $3.4 million because of costs associated with the restructuring of a Dallas laboratory.

Taylor acknowledged that the $12.7-million price for London is high based on the company’s revenue history. “But that’s not what you’re buying,” he said. “It’s a technology buy. You’re buying the technology that you can use in a variety of ways in the future.”

Although London will be merged into Nichols’ diagnostics division, its operations and its 25 employees will remain in Minnesota, Taylor said. There will be no layoffs, he said.

London’s president, Dr. Iraj Beheshti, will join the management of the Nichols diagnostics division, he said.

Dr. Frank McCapra, London Diagnostics’ chairman, will join the Nichols Institute’s academic associate program in scientific research but will not serve as an operational officer, Taylor said.

London Diagnostics was founded by students of McCapra, a former professor of organic chemistry at the University of Sussex in Brighton, England.

Nichols plans to file a registration statement on the transaction with the Securities and Exchange Commission next week. Completion of the acquisition is dependent on approval by London’s shareholders, Taylor said.