"Pathology & Oncology Update"

Welsh Carson Pays $1.14 Billion To Acquire U.S. Oncology, Inc.

It’s another billion-dollar Wall Street bet on the future prospects in oncology services

EVEN AS THE LAST ISSUE of THE DARK REPORT was reaching clients with news of Genzyme Corp.’s offer to buy IMPATH Inc., another big oncology deal was announced.

On March 22, 2004, Welsh, Carson, Anderson & Stowe announced an offer of $15.05 per share to purchase all remaining shares of U.S. Oncology, Inc. which it currently does not own. This was a premium of 18.5% over US. Oncology’s closing share price of $12.70 the previous trading day. Welsh Carson already holds 14.5% of U.S. Oncology’s common stock.

As part of the deal, U.S. Oncology will become a private company. Welsh Carson will pay $1.14 billion. U.S. Oncology has a major presence in cancer treatment. Its affiliated practices include 875 physicians who practice at 470 sites in 32 states. Estimates are that U.S. Oncology provides care to about 15% of the nation’s new cancer cases each year.

Big Money Chases Oncology

For the laboratory industry, this is one more billion-dollar play in oncology. As detailed in the last issue of THE DARK REPORT, transactions involving laboratory companies with a significant presence in oncology diagnostics attracted $1.65 billion of investment capital during the past 14 months. (See TDR, March 15, 2004.)

Welsh Carson’s acquisition of U.S. Oncology should interest laboratory administrators and pathologists for another reason. Welsh Carson, a private equity firm, has sizeable investments in LabOne, Inc. of Lenexa, Kansas and owns AmeriPath, Inc., headquartered in Riviera Beach, Florida. It obviously sees a profitable future in laboratory medicine and diagnostic testing services.

Because Welsh Carson owns Ameripath and is now buying U.S. Oncology, one logical conclusion is that it sees potential synergy. That’s because AmeriPath has anatomic pathology capabilities essential to the diagnosis and treatment of cancer. On paper, these capabilities perfectly match the clinical needs of U.S. Oncology’s physicians.

However, executives familiar with Welsh Carson’s involvement in LabOne and AmeriPath tell THE DARK REPORT that it is unlikely that any close synergy will develop between AmeriPath and U.S. Oncology. That’s because Welsh Carson views each company as a standalone investment.

What is notable about the acquisition of U.S. Oncology is that it provides one more example of the close attention Wall Street is paying to the oncology marketplace. Anatomic pathologists should take notice of this fact and prepare for more intense competition.

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