Laboratory Corp. of America Holdings (LabCorp), a large provider of medical testing services, has agreed to acquire CRO Covance in a $6.1 billion cash and stock deal to create a giant healthcare diagnostics company.      

Covance, which this morning announced third-quarter earnings of $66 million on revenue of $671 million, provides LabCorp with a new source of revenue to broaden its customer base into drug development research and animal testing. LabCorp has seen stagnant earnings growth in recent years in light of a weakening in Americans using medical services.

Combining LabCorp’s expansive capabilities in diagnostics with Covance’s clinical research services will result in a mix able to support a drug candidate from its preclinical inception to well past its market debut, the company stated in a press release.

According to a statement from the two companies, combined revenue will be derived from managed care (32%), pharmaceutical and biotech companies (29%), commercial customers (22%), Medicare/Medicaid (12%) and private patients (5%).

For the 12 months through Sept. 30, 2014, the two companies together posted revenue of $8.4 billion, and $1.6 billion in adjusted earnings. Together, the companies have more than $700 million in free cash flow. Approximately 20% of total revenues will come from outside the U.S.

Covance shareholders will receive about $75.76 in cash and 0.2686 LabCorp shares for each Covance share. Together, LabCorp will pay $104.12 a share, a 32% premium to Covance's closing stock price of $79.90 on Oct. 31.

"As a combined company, we will be well positioned to respond to and benefit from the fundamental forces of change in our business, including payment for outcomes, pharmaceutical outsourcing, global trial support, trends in pharmaceutical R&D spending, personalized medicine and Big Data and informatics," David P. King, LabCorp chairman and CEO, said in a statement.

King will retain his current role, while Joe Herring, Covance’s chairman and CEO, will continue to lead the Covance division and maintain its existing brand and operational headquarters in Princeton, N.J. Corporate headquarters will be in Burlington, N.C., where LabCorp is based.

The two companies already have completed an acquisition—earlier this year LabCorp bought Covance’s genomics laboratory in Seattle. Terms were not disclosed. The sale was part of Covance’s strategy to shed underperforming assets, according to David Windley, a Jefferies analyst, in a statement in early February.

For Covance, today’s announced acquisition is an exit strategy—one of few options the company had to improve shareholder value, according to Todd Van Fleet, a vice president at First Analysis.

“The acquisition makes a lot of sense and is an indication LabCorp had aspirations for ongoing diversification,” said Van Fleet. “This is a unique opportunity for both companies.”

For more in-depth coverage of this story, don’t miss next Monday’s CWWeekly.