Sources tell the Wall Street Journal that McKesson Corp. may be weighing a separation of its information-technology unit as it works to contain costs and refocus on its core drug distribution business.
People familiar with the matter told the Journal that the San Francisco-based distributor is considering options for the segment that could include a merger or a sale. There's no definitive deal or spinoff plans, and any action could be for only parts of the business, which offers software, services, automation and consulting to providers.
A McKesson spokeswoman said the company doesn't comment on “rumors and speculation.”
The Journal estimates the business could be worth over $5 billion, including any debt. Some pieces of the segment have already been sold off over time, including its nurse triage hotline business. Soaring drug costs forced the company to slash its workforce by 4% earlier this year, though a recent deal with big-box chain Wal-Mart may provide a much-needed boost.
In fiscal 2016, technology revenue was down 6% to $2.9 billion. In the fourth quarter, it was down 5% to $734 million, affected by an expected decline in the company's hospital software business and the sale of its nurse triage hotline business.
Baird analyst Eric Coldwell wrote in a note on Friday that his team has long been in favor of McKesson exiting the technology business because it has missed expectations and has taken capital from other pursuits. But he noted that's less of a concern with other looming problems concerning the company's earning mix and “investor focus dwindling.”
“If the price is right (i.e., earnings neutral/accretive) for all or part, then it makes sense to move on,” Coldwell said. “If not, costs/distractions are not justified and there is very little risk to the stock from continuing internal pruning.”
Coldwell and his team of analysts believe that McKesson hasn't yet sold or spun off the business due to its diversity of offerings as well as the benefits it offers to the company's distribution services.