Pathology company merger off after regulator opposition

A merger of two of Australia's largest pathology providers is dead in the water after the regulator blocked the move, citing fears it would lessen competition.

Shortly after the Australian Competition and Consumer Commission's announcement on Friday, Australian Clinical Labs said it did not want to go ahead with its acquisition of Healius anyway, due to the latter's recent poor financial performance and underwhelming earnings guidance.

"These factors have resulted in the Healius share price declining by 45 per cent since ACL announced its intention to make the offer on  20 March 2023," the company said in a statement to the Australian stock exchange.

The board no longer believed the offer of 0.74 ACL shares for each Healius share reflected the relative contribution that each party would bring to the merged company, the statement said.

But the board still believed a merger was compelling and "the two companies have the potential to be worth significantly more together than as standalone entities".

Standing in the way of any renewed takeover bid, however, is the ACCC's ruling.

"We consider that the proposed acquisition would be likely to result in a substantial lessening of competition as it would combine two of the three largest providers of pathology services in Australia, further consolidating already-concentrated markets," ACCC commissioner Stephen Ridgeway said.

Combined, the companies would operate more than half the country's approved pathology collection centres. In some regions, they are the only providers available. 

"We’re concerned that the proposed acquisition would impact patients and their referring doctors, potentially through longer turnaround times, shorter collection centre opening hours, reduced support for medical practitioners and increased prices for patients via increased private billing," Mr Ridgeway said.

ACL said the ACCC's decision was disappointing, but not unexpected, and maintained the merger would not substantially lessen competition. 

The company had offered to divest a package of collection centres across regional Victoria, Perth, and the Northern Territory, but this failed to mollify the watchdog.

ACL could offer further divestments to try convince the regulator or challenge its ruling directly in the Federal Court.

RBC Capital Markets analyst Craig Wong-Pan ascribed a low probability to the transaction going ahead, given the ACCC's concerns, the extent of undertakings that would be required to win the regulator's approval and difficulties the parties would have in finding agreeable terms.

Healius' share price had plunged 2.5 per cent to $1.48 by 2pm.

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