LabCorp looks to settle lawsuit seeking to block Covance acquisition

By Zachary Brennan contact

- Last updated on GMT

Related tags: Goldman sachs

The settlement comes just weeks before Covance investors look to sign off on being acquired by LabCorp
The settlement comes just weeks before Covance investors look to sign off on being acquired by LabCorp
LabCorp has agreed to settle a lawsuit that aimed to derail the company’s $6.1bn acquisition of CRO Covance.

The lawsuit was filed by a Covance investor​ who questioned Goldman Sachs’ involvement in providing advice to the company’s Board of Directors because of a conflict of interest. The settlement comes nearly two weeks before Covance shareholders are expected to vote on the acquisition. A Delaware court still needs to approve the settlement deal.

As part of the settlement, which released LabCorp from any liability, the contract developer released new information about Goldman Sachs’ involvement in the deal and potential other deals that were in the works for Covance, according to an SEC filing.

The defendants deny all liability with respect to the facts and claims alleged…and specifically deny that any breach of fiduciary duty occurred​,” LabCorp said.

Other Covance Deals

The filing reveals that Covance was actually interested in possibly merging with one other company, or acquiring another, and sought advice from Goldman, which stands to make about $30m from the LabCorp acquisition. The names of those other companies were not revealed.

The Covance board “was of the view that there was a compelling reason to have Goldman Sachs advise Covance in any transaction with Company A, noting Goldman Sachs’s valuable advice in prior discussions with Company A, [and] Goldman Sachs’s familiarity with both Covance and Company A​.”

Covance management estimated that the potential pre-tax synergies of a combination of Covance and Company A would be approximately $200 million, although Covance management “expressed concern that the regulatory scrutiny of a combination with Company A did pose risk that some element of those synergies might not be attainable​.” 

There was another company that Covance was in discussions to purchase, and Goldman “was providing investment banking services to Company B with respect to the other transaction being considered by Company B and that such other transaction would not proceed if Company B were to be acquired by Covance​.”

The Covance board goes on to acknowledge that it discussed “a potential conflict of interest for Goldman Sachs, it concluded that Covance was likely to make a decision between a transaction with Company A or Company B relatively quickly and, therefore, this potential conflict would be eliminated in the very near term​.”

But Goldman’s involvement in the potential deal with Company B did not end there, despite continuing to provide investment banking services to the company.

In early October, Goldman became aware that Covance was potentially interested in acquiring Company B, and it informed Company B and Covance that it would not act as a financial advisor to either company.

Around that time, at the request of a representative of Company B, one of the Goldman Sachs personnel passed on to a representative of Covance certain financial projections from Company B management’s financial model that Goldman Sachs had been provided in connection with its work on the alternative transaction Company B was pursuing. Goldman Sachs did not, however, advise or support Company B in any of its discussions with Covance​,” LabCorp claims.

The Covance board later discussed that it would exclude Goldman Sachs from any meetings or portions of meetings where a transaction with Company B was to be discussed.

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