Saying that it is expanding its “existing channel reach into the operating room and long-term care,” Cardinal Health is acquiring the Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency businesses of Medtronic for $6.1 billion, to be financed by a combination of $4.5 billion in new senior unsecured notes, and cash. The transaction is expected to close in Q1 of Cardinal’s FY 2018 (the third quarter of this calendar year) following regulatory clearances.
Product brands include Curity, Kendall, Dover, Argyle and Kangaroo, “which are used in nearly every US hospital,” according to Cardinal. “[T]his product portfolio has been on our radar for many years,” said George Barrett, Cardinal Health chairman and CEO. “We distribute some of these products today and have been collaborative partners with the leadership of this business. 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.”
The acquisition will add roughly $2.4 billion in combined revenue to Cardinal (based on revenue of the past four quarters), and an additional headcount of 10,000 employees, working at 17 manufacturing facilities, according to press reports. Medtronic, a leading medical device manufacturer, obtained the businesses through its 2015 acquisition of Covidien. By the end of FY2020, says Cardinal, synergies of $150 million/yr will have been achieved through operational rationalizations.
As of midday on the day of the announcement (Apr. 18), Cardinal’s stock was down by around 11% over worries on the amount of debt the company is taking on, combined with Cardinal’s own forecast of flat growth in earnings in the coming fiscal year. Medtronic was relatively unchanged.