Is That Ron Perelman Come A Courtin'?

Damon, a major provider of laboratory-testing services to the medical profession, may soon find suitors knocking at its door. Whispers are that Damon has been informally approached by financier Ron Perelman and executives of a European drugmaker to discuss a merger or acquisition.

Perelman is chairman and 21% owner of National Health Laboratories, operator of 16 testing labs and 341 specimen-collecting stations. If it were to acquire Damon, National Health would become the major player in the industry. Damon, which has been growing recently through acquisitions, now owns 12 regional labs in the U.S. and Mexico, plus 50 smaller labs and 135 collection centers.

Damon Chairman and CEO Rob Rosen would neither confirm nor deny that he had been approached by Perelman or others. But Joseph Cohen, who heads the Garnet Group--an investor partnership--and owns a 9.2% stake, says: "Based on its fundamentals, Damon is a very attractive merger target for larger domestic and foreign companies." And National Health President and CEO Robert Draper says: "We are always looking for sensible acquisitions." Perelman denied comment.

SWIFT REACTION. Some investors have started to react, notes one New York fund manager. "We have noticed a swell of corporate buying in the stock in recent weeks, and some, we believe, have emanated from overseas." In a merger, Damon "should fetch a price of 35 to 38 a share," this pro figures. Like other health-care companies, Damon, based in Needham Heights, Mass., has taken a hit since summer. Trading at 25 a share in early June, it started slipping in July and by mid-October was down to 16. Thanks to an earnings turnaround, the stock has picked up since, rising to 21.

Another Damon bull is Oppenheimer analyst Glenn Reicin, who rates it an "aggressive purchase" despite investor nervousness toward health-care stocks. "Given its projected per-share earnings growth of 35%, Damon is dirt cheap," says Reicin. Earnings, he figures, will rise to $1.03 a share in 1992 and $1.48 next year, vs. a 98 cents loss last year.

Much of the worry over health stocks stems from President-elect Clinton's promise to cut medical costs. Damon isn't dependent on price increases for its growth, notes Reicin. So he thinks the impact of reduced pricing for lab tests--if it happens--on Damon's earnings will be minimal. Reicin believes that Damon will benefit from an increased volume of tests the company will pick up from the smaller, less efficient labs, which won't be able to survive.

A Big Board company in the 1980s, Damon was acquired by an investor group in 1989. Three years later, the company went public again. Its equity has ballooned from $50 million in 1989 to $350 million, and its debt has declined from $270 million to $157 million.

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