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Medtronic Selling Off Medical Supplies Business for $6.1B

Medtronic Selling Off Medical Supplies Business for $6.1B

The buyer, Cardinal Health, will receive ownership of medical products used in “nearly every U.S. hospital.”

Medtronic officially inked a deal with Cardinal Health on Tuesday, selling off its medical supplies business — a unit it acquired from its merger with Covidien — for approximately $6.1 billion in cash.
 
Medtronic, which keeps its U.S. operation headquarters in Fridley, said the cash, which would shrink to $5.5 billion after taxes, would largely go toward reducing its debt. Only $1 billion would be used separately as part of a share repurchase initiative during its next fiscal year.
 
“This is a positive transaction for all involved,” said Omar Ishrak, CEO of Medtronic, in a statement. “Ultimately, we came to the conclusion that these products [in our medical supplies business] … are best suited under ownership that can provide the investment and focus that these businesses require.”
 
Cardinal Health will take ownership immediately of Medtronic’s individual business units that last year sold $2.4 billion worth of catheters, needles and other medical instruments. The Dublin, Ohio-based drug distributor saw immense value in the deal, it said, as “nearly every U.S. hospital” (as well as many international hospitals) purchased products made under Medtronic’s Curity, Kendall, Dover, Argyle and Kangaroo brands.
 
“Given the current trends in health care, 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 health care, reaching customer across the entire continuum of care,” said George Barrett, CEO of Cardinal Health, in a statement.
 
As part of the deal, Cardinal Health will also acquire 17 manufacturing facilities responsible for producing its medical supplies products.
 
“We’re also looking forward to welcoming the more than 10,000 employees across these businesses,” Barrett added.
 
Cardinal Health will finance the sale, which is set to close in early 2018, through a mix of existing cash and $4.5 billion in new senior unsecured notes.
 
Assuming the transaction is approved, Medtronic expects its earnings per share during its next fiscal year to take a 12-cent to 18-cent hit.
 
Meanwhile, Cardinal Health is anticipating its adjusted diluted earnings per share to grow by more than 21 cents during its fiscal 2018 year. By the end of 2020, the company is assuming synergies will exceed $150 million annually.
 
Shares of Medtronic remained flat on Tuesday at $80.35. Cardinal Health stock, however, fell roughly 12 percent from its Monday close of $81.83.