America's Top Lab, Now In The Making

When National Health Laboratories (NH) announced its plan to merge with Roche Biomedical, a unit of Switzerland's Hoffmann-LaRoche, health-care analysts and institutional investors cheered. The No.3 and No.4 lab-services companies would combine to create the largest in the U.S., with impressive economies of scale. But NH stock took only a modest step up, from 12 to 131/2, even though some valued the package mf $5.60 in cash, warrants, and new stock at 17 to 19 a share.

The deal has cleared antitrust hurdles and is expected to close in April, but National Health Labs still sells at 14, and some think it's a good buy. A detailed proxy statement should be available shortly.

The proxy will shed light on the Roche unit and help determine the earning power of the new entity. "We believe Roche's margins are significantly below NH's, so there's lots of room for improvement," says Alan Snyder, whose Snyder Capital Management holds nearly 2 million shares. NH figures the merger can slash about $90 million in overhead this year and next. Donaldson, Lufkin & Jenrette analysts say the 1996 earnings per share could exceed $1, making today's valuation less than 12 times earnings.

Investors in National Health will be in billionaires' company. Ron Perelman's MacAndrews & Forbes Holdings, now 24% owner of NH, will hold a stake about half that big in the new company. And GEICO holds 9%: GEICO is 49%-owned by Berkshire Hathaway, Warren Buffett's holding company.

And that's not all. Some takeover players think that the proxy may invite an offer from Corning or SmithKline Beecham, the two other major players in the U.S. lab market. Corning declined to comment. And a SmithKline spokesman said his company "does not respond to speculation."

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