Cardinal Health Acquires Medtronic’s Patient Care, Thermal Therapy Businesses

So, Cardinal Health decided to buy some parts of Medtronic’s business. It’s a pretty big deal, costing around $6.1 billion. They’re picking up the patient care and thermal therapy stuff. This move is supposed to help Cardinal Health grow, but honestly, the market didn’t seem too happy about it at first, with Cardinal’s stock taking a bit of a hit. Medtronic, on the other hand, is cleaning house a bit, selling off things that don’t quite fit their main goals anymore, especially after they bought Covidien.

Key Takeaways

• Cardinal Health is acquiring Medtronic’s patient care, deep vein thrombosis, and nutritional insufficiency businesses for $6.1 billion in cash.
• The deal is expected to boost Cardinal Health’s earnings per share and create annual synergies exceeding $150 million by fiscal year 2020.
• Medtronic is selling these units as part of its strategy to focus on core therapy innovation and growth areas after its Covidien acquisition.
• The acquisition was met with a negative reaction in the market, causing Cardinal Health’s stock price to drop following the announcement.
• The acquired businesses include well-known brands like Curity, Kendall, Dover, Argyle, and Kangaroo, which are widely used in healthcare settings.

Cardinal Health and Medtronic Deal Overview

Acquisition of Patient Care, Thermal Therapy Businesses

Cardinal Health has agreed to buy a significant chunk of Medtronic’s business – specifically, the patient care, deep vein thrombosis, and nutritional insufficiency units. This isn’t a small deal; it involves 23 different product categories. Think of brands like Curity, Kendall, Dover, Argyle, and Kangaroo. These are products you’d find in pretty much every US hospital, covering a wide range of healthcare settings, from the operating room to long-term care and even home healthcare. It’s a move that really broadens Cardinal Health’s reach in medical consumables.

Transaction Value and Financing

The price tag for this acquisition is $6.1 billion in cash. Cardinal Health is footing the bill by taking on $4.5 billion in new debt and using some of its existing cash reserves. This financing approach, however, has raised some eyebrows, with Fitch Ratings even adjusting its outlook on Cardinal Health due to concerns about the increased debt load. The deal is expected to wrap up in the first quarter of Cardinal Health’s 2018 fiscal year, assuming all the usual closing conditions and regulatory approvals are met.

Strategic Rationale for Cardinal Health

Cardinal Health sees this acquisition as a way to really expand its footprint across the entire healthcare continuum. With an aging population and a growing emphasis on post-acute care, these newly acquired product lines fit right into Cardinal’s strategy. It allows them to serve customers better in various settings, from hospitals to home care. The company’s CEO, George S. Barrett, mentioned that these product lines have been on their radar for a long time, and they already distribute some of them. It’s about strengthening their medical segment and capitalizing on current healthcare trends.

This acquisition is seen as a strategic move to bolster Cardinal Health’s position in the medical supplies market, aligning with demographic shifts and care delivery trends.

Here’s a quick look at the financial expectations:

• Cardinal Health’s Earnings Per Share (EPS) Impact: Expected to be accretive by over $0.21 per share in FY18 and over $0.55 per share in FY19.
• Synergies: Cardinal Health anticipates achieving over $150 million in annual synergies by the end of FY20.
• Medtronic’s Proceeds: Medtronic expects to receive approximately $5.5 billion after taxes, which it plans to use for share repurchases and debt reduction.

Financial Implications of the Cardinal Health and Medtronic Transaction

Accretion to Cardinal Health’s Earnings Per Share

Cardinal Health is looking at this deal as a way to boost its earnings. They’re predicting that the acquisition will add more than $0.21 per share to their non-GAAP diluted earnings in fiscal year 2018. This figure does account for about $100 million in costs related to inventory adjustments that are expected in the first few quarters after the deal closes. Looking ahead, they anticipate even more growth, with the acquisition expected to contribute over $0.55 per share in fiscal year 2019, and then keep growing from there. It seems like a pretty solid plan to make the company’s earnings look better.

Synergies and Cost Savings

Beyond the direct earnings boost, Cardinal Health is also banking on finding ways to save money and operate more efficiently once everything is combined. They’re estimating that by the end of fiscal year 2020, these combined efforts, or synergies, will result in annual savings of more than $150 million. This is a pretty significant amount and suggests they’ve got a clear strategy for streamlining operations and cutting down on expenses across the newly acquired businesses.

Impact on Medtronic’s Financials

For Medtronic, this sale is part of a bigger picture of managing their business portfolio. They’re expecting to get around $5.5 billion after taxes from the sale. A good chunk of that, about $1 billion, is planned for buying back their own stock, which can sometimes make the remaining shares more valuable. The rest of the money will go towards paying down their debt. On top of that, Medtronic figures this move will give their revenue growth and operating margins a small lift, maybe around 50 basis points each, once everything is said and done.

The financial strategy behind this acquisition involves not just the immediate earnings impact for Cardinal Health, but also the long-term benefits of cost savings and improved operational efficiency. For Medtronic, it’s about refining their focus and using the proceeds to strengthen their core business and invest in future growth areas.

Integration and Operational Changes

Inclusion in Cardinal Health’s Medical Segment

So, after Cardinal Health picks up these businesses from Medtronic, they’re not just going to be floating around. Nope, they’re getting a proper home. These newly acquired operations, which include things like patient care products and thermal therapy gear, will be folded right into Cardinal Health’s existing Medical segment. This segment is already a big deal for them, and adding these product lines just makes it even more substantial. It’s like finding a missing piece that fits perfectly into their puzzle.

Expected Closing Timeline

When do we expect this whole thing to be official? Well, the deal is slated to wrap up sometime in the first quarter of Cardinal Health’s fiscal year 2018. Of course, that’s always dependent on getting all the necessary approvals and making sure everything is in order, as these things usually are. It’s not a done deal until the paperwork is signed and the regulators give the thumbs up.

Employee Transition and Welcoming New Teams

Cardinal Health is looking forward to bringing on board the folks who have been working with these Medtronic businesses. We’re talking about over 10,000 employees who know these products inside and out. The company seems pretty excited about this, mentioning that they’ve worked with many of these teams before. They’re aiming for a smooth transition, making sure everyone feels welcome and ready to contribute to Cardinal Health’s mission. It sounds like they want to make sure these new team members feel right at home from day one.

The integration plan seems to focus on leveraging existing relationships and familiarity to ensure a smooth handover. It’s not just about acquiring products, but also about bringing in the talent and experience that comes with them.

Here’s a quick look at what’s happening:

• New Home: Acquired businesses join Cardinal Health’s Medical Segment.
• Timing: Expected completion in Q1 of fiscal year 2018.
• People: Over 10,000 employees are expected to transition.
• Goal: A smooth and welcoming integration process.

Market Reaction and Stock Performance

When Cardinal Health announced the acquisition of Medtronic’s Patient Care and Thermal Therapy businesses, the market had a pretty strong reaction, and not entirely in a good way for Cardinal Health’s stock.

Cardinal Health Share Price Decline

Right after the news broke, Cardinal Health’s stock took a pretty significant hit. On April 18, 2017, the day of the announcement, the shares closed down by about 11.54%. That’s a big drop in a single day, and it shows investors were a bit concerned about the deal. Trading volume was way up that day, too, with over 13 million shares changing hands, much more than the usual daily average. Even with this dip, the stock had seen some gains earlier in the year, but this news definitely put a damper on things.

Analyst Insights on the Deal

Analysts had mixed feelings. While some saw the strategic sense for Cardinal Health in expanding its medical segment, the immediate stock drop suggested concerns about the price, integration challenges, or perhaps the impact on Cardinal Health’s near-term earnings. The company did update its financial guidance, expecting the deal to add about $0.21 to its non-GAAP earnings per share in fiscal 2018, assuming it closed in the first quarter of that fiscal year. However, they also guided that fiscal 2017 non-GAAP EPS would be at the lower end of their previous range, partly due to generic deflation. This cautious outlook likely contributed to investor unease.

The market’s reaction often hinges on how a deal is perceived in terms of immediate financial impact versus long-term strategic benefit. Sometimes, even a seemingly sound strategic move can spook investors if the short-term costs or uncertainties are too high.

Impact on Competitor Stocks

It’s interesting to look at how this might have affected competitors. Companies in similar spaces, like those offering patient care or thermal therapy products, might see their own stock prices react. If the acquisition strengthens Cardinal Health’s market position, it could put pressure on rivals. However, without specific data on competitor stock movements immediately following the announcement, it’s hard to say definitively. Generally, major consolidation in the healthcare sector can lead to shifts in market dynamics, influencing how other players are valued. Keeping up with tech events can sometimes give clues about broader industry trends.

Here’s a quick look at the numbers for Cardinal Health around the announcement:

Medtronic’s Strategic Portfolio Management

Medtronic has been pretty active in shaping its business over the last few years. It’s like they’re constantly tidying up their room, deciding what to keep and what to pass on to someone else. This latest deal with Cardinal Health, offloading the Patient Care and Thermal Therapy businesses, is just another step in that ongoing process.

Divesting Non-Core Assets Post-Covidien Acquisition

Remember when Medtronic bought Covidien? That was a huge move, and it brought a lot of new things into the Medtronic family. But with that came a lot of different product lines, and not all of them fit perfectly with Medtronic’s main goals. So, they’ve been gradually selling off parts that don’t quite align with their core strategy. It’s a way to streamline things and make sure they’re putting their energy and money into the areas that have the most potential for growth and innovation. Think of it like clearing out your garage – you keep the tools you use all the time and donate or sell the ones that just sit there.

Focus on Therapy Innovation and Growth Strategies

Instead of trying to be everything to everyone, Medtronic is really zeroing in on what they do best. They want to be leaders in developing new therapies and expanding their reach globally. This means investing more in research and development for things like diabetes management, cardiac devices, and surgical technologies. They’re looking for opportunities that offer a better return and are more directly connected to their long-term vision. It’s about making smart choices to build a stronger, more focused company.

Reallocation of Proceeds for Future Investments

When Medtronic sells off a business, they don’t just put the money in a vault. They have a plan for it. A good chunk of the money from these sales, like the $5.5 billion expected from the Cardinal Health deal, is earmarked for specific purposes. A portion is often used for buying back their own stock, which can be good for shareholders. The rest? That usually goes towards paying down debt or, more importantly, funding future growth initiatives. This could mean investing in new technologies, acquiring smaller companies that have promising products, or expanding their operations in new markets. It’s a cycle of selling what’s less strategic to invest in what will drive future success. For instance, they’ve been making moves in diabetes care, partnering with companies like Samsung to improve how patients manage their condition.

Medtronic’s approach seems to be about sharpening its focus, making sure its resources are directed towards areas where it can truly make a difference and achieve significant growth. It’s a strategic dance of shedding the less essential to make room for the truly innovative.

This strategy also involves looking at how their products perform in the market. For example, while the Spine business faced some challenges, other areas like Neurovascular saw significant sales increases, partly due to products like the Solitaire FR device. This kind of performance analysis helps guide their decisions about which parts of the business to keep and which to potentially divest. It’s all part of a larger plan to manage their diverse portfolio effectively and stay competitive in the fast-changing medical technology landscape. They’re also looking at how to improve their market position through things like risk-sharing agreements with healthcare providers, showing a willingness to adapt to new business models. You can see how this kind of strategic thinking is important when looking at the future of personal computers and the chips that power them, like those from Advanced Micro Devices.

Key Brands and Product Categories Acquired

So, Cardinal Health picked up a bunch of stuff from Medtronic, and it’s not just a few random items. We’re talking about established product lines that are pretty well-known in hospitals and healthcare settings. Think about the brands you see around – Curity, Kendall, Dover, Argyle, and Kangaroo. These aren’t new names; they’re used in pretty much every US hospital, which is kind of a big deal.

Prominent Brands in the Acquired Portfolio

The acquisition brings aboard several key brands that are already familiar to healthcare professionals. These include:

• Curity: Often seen in wound care and surgical supplies.
• Kendall: Known for its range of products, including incontinence care and compression therapy.
• Dover: Frequently associated with urological supplies.
• Argyle: Commonly used for various medical tubing and drainage products.
• Kangaroo: Primarily recognized for its enteral feeding systems.

These brands represent a significant portion of Medtronic’s former Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses.

Market Reach Across Healthcare Settings

What’s interesting is how widespread these products are. They cover about 23 different product categories. You’ll find them in hospitals, sure, but also in long-term care facilities and even in people’s homes. It really spans the whole spectrum of care, from the operating room to post-acute recovery.

This broad market penetration means Cardinal Health is stepping into a business with established customer relationships and a strong presence across various healthcare environments. It’s not about building something from scratch; it’s about integrating what’s already working.

Revenue Contribution of Acquired Businesses

Financially, these businesses brought in about $2.3 billion in revenue for the 12 months leading up to October 2016. A big chunk of that, over 70%, came from sales within the United States. This gives you an idea of the scale of what Cardinal Health is adding to its portfolio. It’s a substantial addition that should make a noticeable impact on their overall business, especially within the medical segment. It’s a move that could really help them expand their reach, much like how wearable devices are changing how we monitor our health wearable devices offer enhanced lifestyles.

Looking Ahead

So, Cardinal Health is buying up some of Medtronic’s old businesses. It’s a pretty big deal, costing $6.1 billion. Cardinal thinks this will really help them out, especially with things like patient care and keeping people from getting blood clots. They’re expecting it to boost their earnings pretty nicely over the next couple of years. Medtronic, on the other hand, is selling off parts of its company after that huge Covidien purchase a while back. They say it’s all about focusing on what they do best. It’ll be interesting to see how this all plays out for both companies and, more importantly, for the patients who use these products.