Carilion Clinic's subsidiary for-profit lab business has entered an agreement to merge with a larger North Carolina lab company to form one of the largest laboratory companies in the nation.

The merger of Carilion Labs and Greensboro, N.C.-based Spectrum Laboratory Network forms a private company with more than 2,600 employees and annual revenues of more than $300 million. The new company does not yet have a name.

That likely makes the newly formed company one of the top 10 laboratory companies in the country in terms of size, said Jondavid Klipp, publisher of the industry newsletter Laboratory Economics.

Carilion will own a minority interest of 33 percent of the new company, and the approximately 900 Carilion Labs employees will keep their jobs. Carilion will also have three seats on the board of the new company, one of which will be filled by Carilion Clinic CEO Dr. Ed Murphy.

"This is really an investment in our future," Murphy said.

In December, Spectrum Laboratory Network was purchased by the private equity firm Welsh, Carson, Anderson & Stowe. The equity firm brings the financial resources needed for the business to see "considerable" growth over the next five years, Murphy said. New York-based Welsh Carson was established in 1979 and manages total capital of more than $20 billion.

Discussions with Welsh Carson began in the fall, Murphy said.

Klipp said the arrangement, which he characterized as a "takeover" of Carilion Labs, makes the new company prime for a sale in a few years.

"I think in two to three years they're going to get sold to Quest [Diagnostics] or Labcorp, or they are going to become a public company," Klipp said.

Quest and Labcorp (Laboratory Corporation of America) are the two largest laboratory companies in the country and both are publicly traded. In 2003, Welsh Carson purchased another laboratory business, AmeriPath, for $800 million, Klipp said. Four years later Welsh Carson sold AmeriPath to Quest for $2 billion, he said.

"We have a proven track record of partnering with not-for-profit health care systems to help them expand their delivery systems and reach within their medical community," said Sean Traynor, general partner with Welsh Carson, in a statement. "Carilion Labs and Spectrum Laboratories each have an excellent reputation with clinicians for providing excellent clinical and anatomic pathology services, and we hope to continue to build on that reputation and bring the approach to other communities."

Any money from a future sale would give Carilion resources to support its main purpose of providing health care and hospital services to people living in Southwest Virginia.

"This is a business line that we expect to be able to grow and to be more valuable and more profitable," Murphy said. "So we can use the value and income to help sustain a lot of the things we do for indigent care to medical education to clinical research."

Klipp estimated that the new Carilion/Spectrum company will likely grow from 5 percent to 10 percent a year.

Carilion had been looking for a buyer of its lab business since 2008. Back then, discussions with one potential buyer didn't materialize. Murphy, however, said that they continued to entertain options and that the deal with Welsh Carson turned out to be "a very attractive option."

"We brought Carilion Labs as far as we could with our resources," Murphy said, adding that additional financial and managerial resources were needed for the company to continue to grow.

Carilion Labs was formed in 2005 and has seen revenue grow from $48.2 million in 2006 to $109.8 million in 2009.

The merger creates a company serving 37 hospitals and 14,000 physicians in eight mid-Atlantic states.

Because of the size of the deal, the merger must first be approved by the Federal Trade Commission and other regulatory bodies. But the deal is expected to close by the end of February.

The new company will be jointly headquartered in Roanoke and Greensboro. As the company grows there may be the potential for new jobs, but the actual merger will not create new jobs, Murphy said.

David Weavil, who was already serving as the chief executive of Spectrum since Welsh Carson took over, will be the new company's CEO.