CEO SUMMARY: For laboratories with automation equipment from Lab-InterLink, the sale of the troubled company to Cardinal Health is good news. At the same time, interesting questions are triggered by this development. What plans does Cardinal Health have for the laboratory testing marketplace? Was Beckman Coulter bidding for Lab-InterLink as a way to acquire the technology and keep it off the market?
THERE’S NOTHING like an auction among interested buyers to generate the highest price for the seller.
In this case, an auction of the assets of Lab-Interlink, Inc. directed by a federal bankruptcy court in Omaha, Nebraska converted a single purchase offer of $550,000 into a sales price of $3.25 million. Lab-InterLink makes laboratory automation equipment and software. It ran out of working cash last November and that’s when things began taking unusual turns. Like an O. Henry short story, the Lab-Interlink tale has several fascinating twists and a surprise ending, a least for the current chapter.
Cash Ran Out In November
That chapter began last November. Attempts during 2003 to raise additional capital were unsuccessful. When the last of Lab-InterLink’s money ran out that month, it was forced to lay off most of its employees and continue with a skeleton staff. (See TDR, February 2, 2004.)
Lab-InterLink’s founder and CEO, Rodney S. Markin M.D., Ph.D., continued searching for investors or buyers. The interested buyer turned out to be Cardinal Health, Inc. of Dublin, Ohio. Cardinal Health signed a purchase agreement with Lab-InterLink and agreed to pay $550,000 for the troubled company, with a closing date set for May 20, 2004. This purchase was to take place as part of a Chapter 11 bankruptcy action by Lab-InterLink.
The bankruptcy was necessary because Lab-InterLink had assets of approximately $2.8 million, but liabilities totaling almost $15 million. A Chapter 11 bankruptcy filing would allow Lab-Interlink to wipe out these debts and let Cardinal Health take clean title to the company.
Early in April, Lab-Interlink went to federal court in Omaha, Nebraska and filed its Chapter 11 bankruptcy action. When news of the bankruptcy became public, several interested parties showed up to object.
One group represented employees who filed claims for unpaid salaries and expenses totaling $375,000. Another objector was the University of Nebraska (UN), which holds the patents Markin developed in his position as Professor of Pathology at the UN Medical School. It was concerned over the status of the patents.
Auction Set For May 5
With Lab-InterLink now in bankruptcy court, Cardinal Health and Markin expected the court to approve the sale to Cardinal as part of the company’s restructuring plan. Here’s the next twist in the story. The bankruptcy judge ruled on April 22 that a public auction would be held on May 5. If no other bidders appeared on that date, the company would be sold to Cardinal Health for $550,000.
In the days following the bankruptcy filing, two other buyers had expressed interest. But on auction day, only one other buyer appeared. That was Beckman Coulter Corporation from Fullerton, California.
Over the course of 12 rounds of bidding, the final purchase price climbed from $550,000 to $3.25 million!
In a conclusion worthy of O. Henry, the auction took some unexpected twists and ended up with a surprise ending. Over the course of 12 rounds of bidding, the final purchase price climbed from $550,000 to $3.25 million! And the winning bidder? It was Cardinal Health. Beckman Coulter refused to raise its last bid of $3.2 million and went home empty-handed.
In another twist to the story, founder Markin and his wife, Annette, another Lab-InterLink creditor, pledged to the court stating that they would set aside $250,000 of the money they receive from the sale to Cardinal Health to be applied toward the salaries of former employees. The employees’ salary claims are unsecured. The Markins are the first of four secured creditors and say they are owed $2.5 million from Lab-InterLink.
When Lab-InterLink is sold to Cardinal Health, it will end that chapter of its story and begin a new chapter. Cardinal Health plans to invest significant capital in Lab-InterLink. It intends to take over the company’s offices, rehire employees, and operate the business from Omaha.
With its purchase of Lab-InterLink, Cardinal Health will assume a larger presence in the diagnostic testing marketplace. The company employs 50,000 people and has annual revenues of $60 billion. Its main source of revenue is pharmaceuticals distribution. But it does have a division that sells automation and information services. Its Pyxis MedStation® is a big-selling automated pharmacy system. Lab-Interlink, with both its hardware and software solutions, is probably seen as complementary with Cardinal Health’s pharmacy automation.
The interesting player in this story is Beckman Coulter. Coulter Corporation, before its acquisition by Beckman in 1997, had invested in Lab-InterLink. Beckman offers its own line of laboratory automation equipment. After the auction for Lab-Interlink, its attorney, Richard Myers, stated that Lab-InterLink considers Beckman Coulter to be a competitor that would probably have pulled Lab-InterLink’s technology off the market had it been the winning bidder.
It will be welcome news to Lab-Interlink’s lab customers that its buyer is a big and financially-healthy corporation. Many customers have struggled to keep their Lab-InterLink products operational during the past six months.