Cardinal Health, Inc. (NYSE: CAH) announced its $6.1 billion acquisition of three Medtronic businesses (NYSE:MDT) on the same day it disappointed shareholders with its 2017 guidance update.
It’s been a tough April for Cardinal Health, the healthcare services and products company that operates through its Pharmaceutical and Medical segments. On April 18th, 2017, the company released a disappointing guidance update stating that its fiscal 2017 non-GAAP EPS from continuing operations will be at the bottom of its previous guidance range of $5.35 to $5.50.
The company pointed to generic drug deflation as one of the leading factors. That same day, the company announced its largest deal to date, a $6.1 billion acquisition of three businesses from Medtronic. The day following the two big announcements, Cardinal’s stock price dropped nearly 13%, leaving many stockholders uncertain about the company’s financial future.
The $6.1 billion price tag does not include cash tax benefits of at least $100 million. The Medtronic businesses will become part of Cardinal Health’s Medical segment. Total revenue for the businesses were $2.3 billion for the 12 months ending October 2016, producing a revenue multiple of 2.65x, with more than 70% of total sales in the United States. The transaction allows Medtronic to concentrate on its original focus of higher-tech devices like pacemakers and heart defibrillators.
The divested businesses include Medtronic’s Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency businesses, which cover 23 product categories and brands such as Curity, Kendall, Dover, Argyle and Kangaroo, and are used in every U.S. hospital. The divested product lines include dental/animal health, chart paper, wound care, incontinence and electrodes. Medtronic will retain its businesses in respiratory and monitoring products, including ventilators and certain monitors, as well as its renal care solutions business.
Cardinal Health will fund the acquisition with $4.5 billion in new debt plus existing cash, and. And, Cardinal Health expects fiscal year 2019 non-GAAP EPS to grow by at least high-single-digits compared to fiscal year 2018. So, the bigger picture may not be as gloomy as some stockholders are seeing right now.
