FTC OKs Sale of Unilab to Quest

Antitrust regulators on Friday finally approved the $813-million purchase of Unilab Corp. by Quest Diagnostics Inc., the nation’s largest operator of medical testing labs.

The decision by the Federal Trade Commission came less than two weeks after Teterboro, N.J.-based Quest agreed to sell four medical-testing contracts in California to its chief competitor, Laboratory Corp. of America.

The FTC had been threatening to go to court to block the acquisition unless the company agreed to the agency’s divestiture demands, people familiar with the matter said.

Quest said it went along with the sale of the contracts to ease FTC concerns that the Unilab purchase would hurt competition for lab services in Northern California. Buying Tarzana-based Unilab allows Quest to expand in California, a growing market that Unilab has dominated.

The acquisition move was first announced in April 2002.

“Quest and Unilab are the predominant independent clinical laboratories serving IPAs [independent physician associations] in Northern California,” said Joe Simons, director of the FTC’s Bureau of Competition. Without the divestitures Quest agreed to, he said, “their combination would have decreased competition and increased health-care costs.”

Quest said in a statement that it would buy all validly tendered Unilab shares by Wednesday. The FTC said Friday that its approval depends on the sale of assets to LabCorp.

The divestitures were needed to prevent an anti-competitive acquisition that would have driven up prices, the FTC said.

The commission is requiring Quest and Unilab to sell 46 patient service centers, five rapid-response laboratories and Quest’s Northern California contracts with physician groups.

LabCorp will pay $4.5 million in cash for the contracts to provide medical-testing services to independent physician associations, Quest said. The contracts generate $27 million in annual revenue.

Quest’s purchase of Unilab was announced in April and underwent a lengthy FTC investigation. Quest cut its purchase price by 23% from the original $1.1-billion offer, citing the need to make divestitures that would satisfy FTC concerns.

Quest shares rose $1.53 to $52.81 in trading on the New York Stock Exchange. Unilab shares rose 32 cents to $18.46 on Nasdaq.