LabCorp Launches Review Following Moves by Activist Jana

Laboratory Corp. of America Holdings, which has been pressed by an activist investor to make changes, said its board would launch a review of the company’s strategy because it believed its stock is undervalued.

The lab-testing company has faced questions about the durability of its Covid-19 screening business and whether it should spin off its drug-development unit, Covance. LabCorp has hired Goldman Sachs Group Inc. as its financial adviser, it said in a statement on Tuesday.

LabCorp’s directors and management team are reviewing the company’s structure and its capital-allocation strategy “to ensure we are best positioned to unlock shareholder value while we continue to support patients and customers around the world,” spokesman Christopher Allman-Bradshaw said.

Last month, Jana Partners nominated directors to the LabCorp board amid a push for changes at the company. Jana hadn’t indicated publicly what steps it wanted, but the New York-based hedge fund said it backed the moves LabCorp revealed Tuesday.

“We appreciate the constructive dialogue we have had with management and members of the board, and are fully supportive of the value unlocking review they are undertaking,” said Barry Rosenstein, Jana’s founder and managing partner.

Jana has withdrawn its nominees for the board to give the company an opportunity to conduct its review, according to a person familiar with the matter.

LabCorp plays a key role in processing U.S. Covid-19 tests, but like many of its rivals it has seen a decline in demand since a winter surge in virus cases eased. Its shares have fallen 3.4% in the past month, reflecting a dimmer outlook for Covid screenings as vaccination becomes more widespread.

The stock gained 2.6% in after-hours trading in New York after the review was announced.

Investors have pushed LabCorp executives about what value Covance, which it acquired in 2015, brings to the company as a whole.

“I continue to believe that having diagnostics and drug development together is a winning scenario,” LabCorp Chief Executive Officer Adam Schechter said on the company’s earnings conference call last month.

Nephron Research analyst Jack Meehan called LabCorp shares “bewilderingly cheap” in a late February note. He lauded the company’s mix of assets and said that its growth strategy has been working. He said it was no surprise that Jana had gotten involved, “given the valuation disconnect.”

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