Strategy

Cardinal Health Buys Medtronic Units for $6B

The deal will expand Cardinal's medical products business but its shares dropped 11.5% on updated guidance for fiscal 2017.
Matthew HellerApril 18, 2017
Cardinal Health Buys Medtronic Units for $6B

Cardinal Health said Tuesday it had agreed to acquire Medtronic’s medical supplies units for $6.1 billion but shares of the medical device giant plunged on a forecast for fiscal 2017 earnings that was at the low end of its earlier guidance.

Medtronic’s patient care, deep vein thrombosis and nutritional insufficiency units span 23 product categories across multiple markets, including brands such as Curity, Kendall, Dover, Argyle and Kangaroo that are used in nearly every U.S. hospital. They generated about $2.4 billion in revenue in the last four reported quarters.

The deal will expand Cardinal’s growing medical products business.

CFO Insights on Inflation, Workforce Challenges, and Future Plans 

CFO Insights on Inflation, Workforce Challenges, and Future Plans 

Download our 2022 survey report for a high-level view of finance team projections and strategies, directly from our CFO.com executive readers.

“Given the current trends in healthcare, including aging demographics and a focus on post-acute care, this industry-leading portfolio will help us further expand our scope in the operating room, in long-term care facilities and in home healthcare, reaching customers across the entire continuum of care,” Cardinal CEO George S. Barrett said in a news release.

Analysts also cheered the move. “We believe [the acquisition] fits well into Cardinal Health’s strategy in medical, and continues to diversify the business away from pharma distribution,” Cowen & Co.’s Charles Rhyee wrote.

Cardinal expects the acquisition to be accretive to non-GAAP diluted earnings per share by more than $0.55 per share in fiscal 2019, and increasingly accretive thereafter.

But the company also announced Tuesday that it expects fiscal 2017 earnings per share at the low end of earlier guidance of $5.35 to $5.50 per share, compared with the FactSet consensus of $5.42. It cited generic price deflation in its pharmaceutical business.

In trading Tuesday, Cardinal shares dropped 11.5% to $72.39. The stock had jumped 8.0% over the past three months, compared to a 3.4% rise in the S&P 500.

“The weaker guidance, which includes the positive accretion from Medtronic’s supply business, is concerning for the distributor sector,” Mizuho Securities USA analyst Ann Hynes told Reuters.

Cardinal said it will fund the Medtronic deal with $4.5 billion in new debt plus existing cash. That prompted Fitch Ratings to express concerns over Cardinal’s debt burden and lower its outlook on the company.

4 Powerful Communication Strategies for Your Next Board Meeting