Cardinal Health to acquire Medtronic medical supplies business for $6.1B

The drug and medical products distributor Cardinal Health plans to acquire Medtronic's medical supplies business for $6.1 billion, the company announced on Tuesday.

The cash deal would give the Dublin, Ohio-based company access to Medtronic's 23 product categories in its patient care, deep vein thrombosis and nutritional insufficiency business, which "are used in nearly every U.S. hospital," Cardinal said.

Medtronic's product portfolio has been on Cardinal Health's radar for many years, said George Barrett, Cardinal Health chairman and CEO. While the transaction will expand Cardinal's reach into the operating room and long-term care, it will also increase its debt load. The deal will be financed with a combination of $4.5 billion in new senior unsecured notes and existing cash and is expected to close in the first quarter of 2018.

"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," Barrett said in a news release.

The portfolio has more than 10,000 employees working across 17 manufacturing facilities. It had a total combined revenue of $2.3 billion in the last four reported quarters with more than 70% of total sales in the U.S.

Medtronic's medical supplies business sells products such as prefilled syringes, bandages and catheters, featuring brands such as Curity, Kendall, Dover, Argyle and Kangaroo. It acquired the medical supplies business two years ago in its $50 billion Covidien deal.

Cardinal's medical product segment has performed well. The company saw profit growth of 50% in the quarter ended Dec. 31, due to contribution from the company's brand-name products, including Cordis, the cardiovascular device subsidiary it acquired in 2015.

Cardinal expects the transaction to add more than 21 cents to its adjusted diluted earnings per share in fiscal 2018, which includes approximately $100 million of inventory fixed costs following the deal's closing. The company projects its adjusted diluted earnings per share to increase by more than 55 cents in 2019. Synergies will exceed $150 million annually by 2020, Cardinal said.