MDS Inc. said Thursday it has inked a deal for a division of the Ontario Employees Retirement System to buy its laboratory services unit for $1.33 billion.

MDS Diagnostic Services is the largest provider of lab services in the country with more than 2,900 employees and $335 million in annual revenues.

The lab division provides more than 50 million diagnostic tests to more than 10 million patients and nearly 20,000 physicians in Canada each year.

The buyer is Borealis Infrastructure Management, which invests in and manages OMERS infrastructure assets.

"The sale of our diagnostics business represents a major milestone for MDS in the transition to a global life sciences company," said Stephen DeFalco, MDS's president and CEO.

"We will be able to focus exclusively on life sciences markets, where incredible advances are being made to diagnose and treat diseases," he said.

As part of its shift to the life sciences field, MDS plans to use $500 million of the proceeds to fund a one-time share buyback. The company said it will also discontinue the payment of its quarterly dividend.

MDS intends to invest the remainder of the proceeds in growing its life sciences businesses. The company also expects to convert to reporting in U.S. dollars in the first quarter of 2007 and to U.S. accounting principles over the course of fiscal 2007.

MDS shares gained $1.38 to finish at $20.13 on the TSX.