Unilab Agrees to Be Bought by Kelso for $420 Million

Unilab Corp., California’s biggest clinical laboratory testing company, agreed Tuesday to be acquired by closely held Kelso & Co. for about $420 million in cash and debt.

Kelso, an investment company, will own about 93% of Unilab shares, buying them for $5.85 each in cash, a 20% premium to Monday’s closing price of $4.88. Other shareholders will hold the remaining 7%.

Fierce competition in the California clinical testing industry during the 1990s forced some companies into bankruptcy. Now, with fewer rivals, Tarzana-based Unilab is able to charge higher prices, helping to boost the company’s earnings and share price. The purchase will give shareholders a better return than Unilab has provided, analysts said.

“This is a company that’s kind of back from the dead in an industry that’s kind of back from the dead,” said Nancy Weaver, a Stephens Inc. analyst. “It’s a lower-risk strategy for management.”

The purchase includes about $145 million in debt, which will be refinanced, and Kelso has the option of changing the transaction so that shareholders receive cash for 100% of their shares.

Unilab shares on Tuesday rose 44 cents to close at $5.31 on the American Stock Exchange.

Unilab said it decided the acquisition was the best way to increase the value of its shares.

“It’s a small-cap stock. It’s languished,” said Melissa Mahoney, a Unilab spokeswoman. “This was an opportunity to get a really good premium.”

Unilab provides clinical testing services to doctors, hospitals and other health-care providers. The company, which will be combined with a unit of New York-based Kelso called UC Acquisition Sub Inc., said it will continue to operate under the Unilab name.