Sector News

Cardinal Health nears $6 billion deal for Medtronic unit: Sources

April 7, 2017
Life sciences

U.S. drug distributor Cardinal Health is nearing a deal to acquire medical device maker Medtronic’s medical supplies business for close to $6 billion, people familiar with the matter said on Wednesday.

The sale would streamline Medtronic’s portfolio after its $42.9 billion acquisition of Covidien in 2014. In that deal, it inherited most of the company’s medical supplies business, which sells everything from syringes to surgical instruments.

Medtronic and Cardinal Health have entered into exclusive talks over the sale of the business, and a deal could be announced later this month, the sources said, cautioning that there was always a chance that the negotiations could end unsuccessfully.

The sources asked not to be identified because the negotiations are confidential. Medtronic and Cardinal Health declined to comment.

For Cardinal Health, the deal would boost efforts to build out its medical products business, which it has highlighted as a priority for dealmaking.

“Certainly a part of the equation for us is how we use our balance sheet, and that may be through activities that are available external to us and the other ways that we deploy capital,” George Barrett, Cardinal Health’s chief executive officer, said last month on the company’s most recent quarterly earnings call.

In 2015, Cardinal Health acquired Cordis from Johnson & Johnson for around $2 billion, adding a portfolio of devices including catheters, filters and stents.

Cardinal Health’s medical products business has been a bright spot for the company, on track to reach mid- to high-single-digit revenue growth, at a time when investors have become more anxious about its drug distribution business.

This is because the entire drug supply chain, including pharmaceutical benefits managers and drugmakers, has been under pressure in recent years, amid increasing scrutiny among lawmakers and insurance companies over high drug costs.

Cardinal Health, along with its peers McKesson and AmerisourceBergen, late last year saw their shares drop after McKesson said that competition was weighing on margins more than expected.

Cardinal Health’s share price has since recovered, despite it having lowered expectations for full-year earnings in its pharma segment.

Source: Reuters via CNBC

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