After a tumultuous year, downtown blood testing company Health Diagnostic Laboratory has successfully secured a new owner.
A federal bankruptcy judge on Wednesday approved the $37.1 million sale of the bulk of HDL’s assets and operations to True Health Diagnostics, a year-old Texas-based firm.
The approval follows an auction held Friday, which lasted from 10 a.m. until after midnight. Thirty bidders showed initial interest in HDL, according to testimony by Martin McGahan, HDL’s chief restructuring officer. Only True Health and one other unidentified bidder actively participated in the auction, and the winning offer was $5.1 million more than True Health’s original stalking horse bid of $32 million.
Judge Kevin Huennekens is likely to enter a final order on the sale on Thursday, and the deal should close three days after that. Court documents stipulate that the sale close by Sept. 29 at the latest.
The closing would cap a year for HDL that has included a federal investigation made public by a Wall Street Journal report, the resignation of its founding CEO, multiple rounds of layoffs, several multimillion-dollar lawsuits, a $47 million settlement with the Department of Justice and a Chapter 11 bankruptcy filing.
“Some questioned whether the debtor (HDL) would ever reach this point,” Jason Harbour, a Hunton & Williams attorney representing HDL said at Wednesday’s hearing. “This is the most important step in the debtor’s case so far.”
True Health offers services similar to HDL, developing blood tests to try to detect early signs of issues like cardiovascular disease, genetic disorders and diabetes. In purchasing HDL, the Texas firm takes on a company that operates a large lab downtown and employs approximately 570 workers.
Neither company has said specifically to what degree True Health will continue HDL’s current operations, including what the ownership change means for the company’s current headcount in Richmond, the role its current management will play going forward and whether the HDL brand will remain.
HDL’s corporate counsel Douglas Sbertoli said after Wednesday’s hearing that “hundreds of jobs have been saved.”
“This is a great day for science and technology,” he said. “We’re proud of what we’ve accomplished.”
In a statement, True Health’s CEO Chris Grottenthaler said the company is attempting to “meet and exceed all regulatory requirements,” and that it “looks forward to the steady, measured growth of our company.”
As part of the sale, HDL will retain some of its assets, including some cash and its ownership stake of HDL Properties LLC and Biotech 8 LLC.
HDL Properties is the entity through which HDL owns 58.9 percent of Biotech 8. And Biotech 8 owns HDL’s 283,000-square-foot downtown headquarters at 737 N. Fifth St. Local real estate firm Lingerfelt Commonwealth Partners, which developed the property, owns the remaining portion of Biotech 8.
HDL currently occupies more than 100,000 square feet in the complex, while VCU has been approved to lease up to 53,000 square feet from HDL and should move in by November.
That rent money, along with the proceeds of the sale would likely go back into HDL’s Chapter 11 bankruptcy case, which will remain open after the sale. More hearings in the bankruptcy process are scheduled for next month.
Regarding HDL’s headquarters, Biotech 8’s attorney Lynn Tavenner of Tavenner & Beran, told Huennekens that True Health may have a “desire for a different type of footprint than what is in place,” but she did not elaborate.
Biotech 8 did not object to the sale, though Tavenner pointed out that there are issues that still need to be worked out with HDL.
True Health also won’t take on HDL’s liabilities, other than state and local taxes. That means True Health is not responsible for HDL’s $47 million tab with the Department of Justice, which the company agreed to pay to settle an investigation into whether it paid kickbacks to physicians. HDL has been making payments to the DOJ, and the total amount is due by 2020.
The money HDL owes to the government and its other creditors will presumably be funded by the proceeds of the sale and other sources.
When asked who is now responsible for the settlement payment, a representative with the DOJ said in an email, “The United States will have a claim in the bankruptcy case with respect to the fraud allegations/Settlement Agreement.”
Few interested parties entered substantial objections to the sale at Wednesday’s hearing. Most had to do with creditors ensuring their rights are reserved in the bankruptcy case going forward.
BB&T, one of HDL’s lenders and largest creditors, had objected to many of the motions in the bankruptcy up to this point but did not object to the sale Wednesday.
Nor did the federal government make any objections to the sale.