Corning Spinning Off Clinical Lab, Drug Businesses
May. 14, 1996
CORNING, N.Y. _ Corning Inc. opted Tuesday to steer out of the highly competitive health-care arena by spinning off its lab-testing and drug services units, which account for nearly 40 percent of its sales.
Hurt by growth in managed care and changes in how the federal government reimburses payments, the struggling laboratory services division has dragged down the company's profits in recent years.
Rather than sell it to another company, Corning is turning the $1.6 billion business over to shareholders along with the fast-growing pharmaceutical services unit, which has revenues of more than $400 million.
Investors seemed to like the idea, bidding up the company's stock $2.75, or nearly 9 percent, to $37.87 1/2 per share on the New York Stock Exchange.
Spinning the businesses off by year's end will give them ``the flexibility to be even more responsive to their customers,'' said Roger G. Ackerman, Corning's newly elected chairman and chief executive.
The businesses employ 22,500 people worldwide, but no layoffs were anticipated. Names have not yet been chosen for the two new independent companies that will be created from the spinoff.
The lab division, based in Teterboro, N.J., provides clinical testing services such as blood screening for doctors and hospitals through a nationwide network of more than 1,000 patient-service centers.
The pharmaceutical unit, based in Princeton, N.J., helps companies develop drugs and employs 4,500 people. Corning has been involved in that business since 1987.
Based in western New York, Corning also makes pollution-control devices, plastics, fiber-optic cables and housewares, a unit whose future remains under scrutiny. It recorded $5.3 billion in sales last year and employs 41,000 people worldwide.
Corning had been contemplating a sale of its lab division, with SmithKline Beecham PLC mentioned as a possible buyer in a deal to create the nation's biggest lab-testing company.
Corning entered the clinical laboratory business in 1982 by buying out MetPath in a stock transaction valued at about $125 million.
At first, the business had revenues and profits growing up to 25 percent annually, analysts said. But as Corning acquired nine smaller labs between 1991 and 1994, earnings slumped as it wrestled with a variety of billing systems and changes in regulatory requirements.
``It's safe to say we got some indigestion as we went through the rapid consolidation and integration of many of those acquisitions,'' the lab division's chief executive, Kenneth W. Freeman, said in a phone interview.
``I think that by being an independent company, we will have that much more flexibility to react to market dynamics and ... much more opportunity to focus on what's needed to be successful in our industry,'' he said.
Much of the health care industry is consolidating as health management organizations negotiate to drive down costs.
Corning blamed its lab division for a 9.6 percent drop in first-quarter profits. It also took a $62 million charge last fall to increase accounts-receivable reserves at the lab unit, citing problems with billing systems and increased regulatory complexity.
Top management was reshuffled, with the top job going to Freeman, a longtime Corning executive.
The proposed deals still face regulatory review and final approval from the board of directors. Also, since they are expected to be tax-free, they need to be approved by the Internal Revenue Service.