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MDS to Sell Lab Business

It wants to be a life sciences player.
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MDS (MDS) agreed to sell its Canadian laboratory services business, MDS Diagnostic Services, to Borealis Infrastructure Management Inc. in a $1.325 billion Canadian dollar transaction.

The Toronto-based company said it intends to shift its business focus to the life sciences market. It set plans for a big buyback and ended its quarterly dividend.

Borealis Infrastructure Management, an investment entity of Ontario Municipal Employees Retirement System, one of Canada's largest pension plans, will acquire MDS Diagnostic Services, Canada's largest provider of laboratory services, with annualized revenue of C$335 million and over 2,900 employees.

MDS expects to realize net proceeds of C$1.052 billion, after provision for taxes, expenses and amounts attributable to minority interests. A portion of the purchase price may be retained for up to 18 months, contingent on the satisfaction of specific transition obligations of MDS. The transaction is expected to close by the end of January 2007.

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Following the completion of this transaction, MDS intends to make a number of changes to its capital structure. MDS plans to use C$500 million of the proceeds to fund a one-time share buyback, subject to regulatory approval. In keeping with the practices of its life sciences peers, MDS will discontinue the payment of its quarterly dividend. In addition, MDS intends to invest the remainder of the proceeds in growing its market-leading life sciences businesses. The company also expects to convert to U.S. dollar reporting in the first quarter of 2007 and to U.S. GAAP reporting over the course of fiscal 2007.