In yet another grab from the private equity market for a piece of healthcare, Cardinal Health said it will sell its pharmaceutical technologies and services business to the Blackstone Group for approximately $3.3 billion in cash.
The agreement provides for Blackstone to acquire the Cardinal businesses that develop, manufacture and package medication and other products for pharmaceutical and biotech firms, employing approximately 10,000 people at more than 30 facilities and generating approximately $1.8 billion in revenue annually.
Cardinal, based in Dublin, Ohio, had announced in November 2006 that it planned to divest the segment to focus resources on its four remaining businesses: pharmaceutical distribution, medical device distribution and two separate divisions that manufacture clinical and medical products.
Cardinal said it plans to use the net proceeds from the sale to repurchase shares. The sale is expected to generate approximately $3.1 billion in after-tax proceeds, Cardinal said in a news release. We think it is good use of our capital, said Jim Mazzola, a Cardinal spokesman.
The move itself will allow the company to focus its full attention on its supply chain and clinical products businesses, officials said. With a near-exclusive focus now on healthcare providers as customers, Cardinal will look for opportunities for integrated offerings among the four remaining businesses, and will seek to acquire tuck-in companies that could enhance the products or services already offered, Mazzola said.
The deal is expected to close this summer in Cardinals fiscal fourth quarter and is subject to regulatory approval.
In a research note, Banc of America Securities analyst Robert Willoughby said that the announcement of a sale came soonerand the sale price was higherthan expected.
Meanwhile, when Cardinal announced its intention to sell the pharmaceutical segment and invest the proceeds in Cardinal shares in November, Moodys Investors Service said it would likely affirm Cardinals Baa2 and Prime-2 ratings and stable outlook if it fulfilled its intention. I believe the companys objective is to be more focused on its hospital customers, said Diana Lee, a Moodys vice president.
Lee also noted that similar to other industries, healthcare has experienced a lot of deals of late involving private equity firms, the most notable being HCAs $33 billion leveraged buyout last year.