- McKesson and Change Healthcare
Holdings, Inc. (CHC) announced the creation of the new Change
Healthcare company in a separate press release this morning.
- Previous Fiscal 2017 guidance range
updated to reflect the timing effect related to the closing of this
transaction:
- $20.35 to $22.50 GAAP earnings per
diluted share from continuing operations, which now includes the
net gain from this transaction, from previous outlook of $9.80 to
$10.30; and
- $12.45 to $12.75 per diluted share,
which excludes approximately $1.28 to $1.30 in charges to Adjusted
Earnings related to a goodwill impairment and the Cost Alignment
Plan, from previous outlook of $12.60 to $12.90.
- McKesson has scheduled a conference
call for 9:00 AM ET today, Thursday, March 2nd, to discuss these
updates.
McKesson Corporation (NYSE:MCK), a leading global healthcare
services and information technology company, and Change Healthcare
Holdings, Inc. (CHC), a leading provider of software and analytics,
network solutions and technology-enabled services, today announced
in a separate press release the creation of Change Healthcare, a
new healthcare information technology company. The entity combines
substantially all of CHC’s business and the majority of McKesson
Technology Solutions (MTS) into a new company.
“As discussed when we first announced this transaction, Change
Healthcare will work to deliver material synergies and prepare for
an IPO,” said John H. Hammergren, chairman and chief executive
officer, McKesson Corporation, and chairman of the board, Change
Healthcare. “We believe a scaled healthcare software and analytics,
and technology-enabled services company will ultimately unlock the
value of our contributed MTS businesses for our shareholders, in a
tax-efficient manner.”
Completion of Financing and Transaction Overview
In conjunction with the creation of the new company, Change
Healthcare raised approximately $6.1 billion in debt, which was
utilized to fund cash payments of approximately $1.25 billion to
McKesson and approximately $1.75 billion to CHC stockholders, cover
transaction costs and repay approximately $2.8 billion of existing
CHC debt.
McKesson owns approximately 70% of Change Healthcare, with the
remaining equity ownership held by CHC stockholders, including
Blackstone and Hellman & Friedman.
Consistent with the agreement between McKesson and CHC
stockholders, which provides for joint governance over Change
Healthcare, McKesson will account for its investment in Change
Healthcare using the equity method of accounting.
Transaction Impact to McKesson
In its fourth quarter results, McKesson anticipates recording a
pre-tax gain of approximately $2.9 billion to $3.5 billion, which
includes $1.25 billion in cash receipts previously noted, and
associated non-cash income tax expense of approximately $0.5
billion to $0.8 billion, both of which will be excluded from
Adjusted Earnings. As a result of the net gain, McKesson will add
approximately $10.70 to $12.35 in GAAP earnings per diluted share
from continuing operations.
Compared to previous guidance, the company’s fourth quarter
Fiscal 2017 financial results will exclude GAAP and adjusted
operating income from MTS’ contributed businesses for the month of
March, which is estimated to be $48 million to $61 million, or
approximately 13 cents to 17 cents in GAAP and Adjusted Earnings
per diluted share. This one-month exclusion is driven by the
closing date of the transaction. The month of March in MTS’ fiscal
year is a higher-than-average contributor to annual revenue and
operating profit, as is typical in a technology business.
McKesson will account for its equity share of Change
Healthcare’s earnings on a one-month lag. These earnings will be
presented in “Other income, net” in the MTS segment. McKesson will
record its associated income taxes on these earnings in the “Income
tax expense” caption of the consolidated income statement.
Therefore, during the month of March 2017, McKesson’s
consolidated income statement will contain neither the earnings of
the MTS contributed businesses due to the timing of the close, nor
any equity earnings from the new company owing to the one-month
lag. As a result, McKesson is updating its Fiscal 2017 GAAP outlook
to $20.35 to $22.50 per diluted share from continuing operations,
and $12.45 to $12.75 per diluted share, which excludes
approximately $1.28 to $1.30 in charges to Adjusted Earnings
related to a goodwill impairment and the Cost Alignment Plan
announced in March 2016. Excluding the transaction timing effect,
the underlying Fiscal 2017 key assumptions provided in conjunction
with McKesson’s earnings press release on January 25, 2017 are
unchanged.
Based on the recently completed debt financing, McKesson’s 70%
share of Change Healthcare’s initial annual interest expense run
rate is expected to be approximately $200 million, equivalent to an
average interest rate of approximately 4.7%. Much of Change
Healthcare’s debt is pre-payable without penalty and may be repaid
ahead of the scheduled maturity under certain conditions.
As part of the transaction close process, McKesson will record
its share of a one-time, non-cash reduction to the carrying value
of its deferred revenue balance. This non-cash adjustment will
reduce McKesson’s reported earnings in Fiscal 2018 by approximately
$140 million to $170 million.
Selected MTS Financial Information
Using fiscal year-to-date December 31, 2016 results from MTS’
contributed businesses, the annualized GAAP revenues, GAAP
operating income, and adjusted operating income are approximately
$1.9 billion, $335 million and $425 million, respectively. Adjusted
operating income excludes approximately $90 million in amortization
of acquisition-related intangible assets and acquisition expenses
and related adjustments.
McKesson will continue to report its operations in two segments,
McKesson Distribution Solutions (MDS) and MTS. McKesson’s equity
ownership of Change Healthcare will be reflected in the MTS
segment. Commencing in Fiscal 2018, McKesson will transition
RelayHealth Pharmacy from MTS to the MDS segment.
“I want to thank all of the employees who made today possible
and who will continue the important work ahead,” continued
Hammergren. “I would also like to acknowledge the tremendous
leadership demonstrated by Pat Blake, who drove the MTS results
that made this transaction possible,” Hammergren concluded.
Conference Call Details
The company has scheduled a conference call for today, Thursday,
March 2nd, at 9:00 AM ET. The dial-in number for individuals
wishing to participate on the call is 719-234-7317. Craig Mercer,
senior vice president, Investor Relations, is the leader of the
call, and the password to join the call is ‘McKesson’. The live
webcast for the conference call can be accessed on the company’s
Investor Relations website at http://investor.mckesson.com.
A telephonic replay of this conference call will be available
for five calendar days. The dial-in number for individuals wishing
to listen to the replay is 719-457-0820 and the pass code is
4550394.
About McKesson Corporation
McKesson Corporation, currently ranked 5th on the FORTUNE 500,
is a global leader in healthcare supply chain management solutions,
retail pharmacy, community oncology and specialty care, and
healthcare information technology. McKesson partners with
pharmaceutical manufacturers, providers, pharmacies, governments
and other organizations in healthcare to help provide the right
medicines, medical products and healthcare services to the right
patients at the right time, safely and cost-effectively. United by
our ICARE shared principles, our 70,000 employees across more than
16 countries work every day to innovate and deliver opportunities
that make our customers and partners more successful — all for the
better health of patients. McKesson has been named the “Most
Admired Company” in the healthcare wholesaler category by FORTUNE,
a “Best Place to Work” by the Human Rights Campaign Foundation, a
top military-friendly company by Military Friendly®, and a “Best
Employer for Healthy Lifestyles” by The National Business Group on
Health. For more information, visit www.mckesson.com.
Risk Factors
Except for historical information contained in this press
release, matters discussed may constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934, as
amended, that involve risks and uncertainties that could cause
actual results to differ materially from those projected,
anticipated or implied. These statements may be identified by their
use of forward-looking terminology such as “believes”, “expects”,
“anticipates”, “may”, “will”, “should”, “seeks”, “approximately”,
“intends”, “plans”, “estimates” or the negative of these words or
other comparable terminology. The discussion of financial trends,
strategy, plans or intentions may also include forward-looking
statements. It is not possible to predict or identify all such
risks and uncertainties; however, the most significant of these
risks and uncertainties are described in the company’s Form 10-K,
Form 10-Q and Form 8-K reports filed with the Securities and
Exchange Commission and include, but are not limited to: changes in
the U.S. healthcare industry and regulatory environment; managing
foreign expansion, including the related operating, economic,
political and regulatory risks; changes in the Canadian healthcare
industry and regulatory environment; exposure to European economic
conditions, including recent austerity measures taken by certain
European governments; changes in the European regulatory
environment with respect to privacy and data protection
regulations; fluctuations in foreign currency exchange rates; the
company’s ability to successfully identify, consummate, finance and
integrate acquisitions; the company’s ability to manage and
complete divestitures; material adverse resolution of pending legal
proceedings; competition and industry consolidation; substantial
defaults in payment or a material reduction in purchases by, or the
loss of, a large customer or group purchasing organization; the
loss of government contracts as a result of compliance or funding
challenges; public health issues in the U.S. or abroad;
cyberattack, natural disaster, or malfunction of sophisticated
internal computer systems to perform as designed; the adequacy of
insurance to cover property loss or liability claims; the company’s
failure to attract and retain customers for its software products
and solutions due to integration and implementation challenges, or
due to an inability to keep pace with technological advances; the
company’s proprietary products and services may not be adequately
protected, and its products and solutions may be found to infringe
on the rights of others; system errors or failure of our technology
products or services to conform to specifications; disaster or
other event causing interruption of customer access to data
residing in our service centers; the delay or extension of our
sales or implementation cycles for external software products;
changes in circumstances that could impair our goodwill or
intangible assets; new or revised tax legislation or challenges to
our tax positions; general economic conditions, including changes
in the financial markets that may affect the availability and cost
of credit to the company, its customers or suppliers; changes in
accounting principles generally accepted in the United States of
America; withdrawal from participation in multiemployer pension
plans or if such plans are reported to have underfunded
liabilities; inability to realize the expected benefits from the
company’s restructuring and business process initiatives;
difficulties with outsourcing and similar third party
relationships; risks associated with the company’s retail
expansion; and the company’s inability to keep existing retail
store locations or open new retail locations in desirable places.
The reader should not place undue reliance on forward-looking
statements, which speak only as of the date they are first made.
Except to the extent required by law, the company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements to reflect events or circumstances after
the date hereof, or to reflect the occurrence of unanticipated
events.
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version on businesswire.com: http://www.businesswire.com/news/home/20170302005672/en/
McKesson Corporation Contacts:Investors and Financial
Media:Craig Mercer, 415-983-8391Craig.Mercer@mckesson.comorGeneral
and Business Media:Kristin Hunter,
415-983-8974Kristin.Hunter@mckesson.com
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