Cardinal Health's $6.1 Billion Deal for Some Medtronic Operations Raises Debt Concerns
April 18 2017 - 9:38AM
Dow Jones News
By Anne Steele
Cardinal Health Inc. struck a deal to buy part of Medtronic
PLC's patient monitoring and recovery unit for $6.1 billion,
bringing businesses under Cardinal's roof that it has sought for
years but also boosting its debt load.
Cardinal said it will fund the acquisition with $4.5 billion in
new debt plus existing cash.
The move prompted Fitch Ratings to voice concerns over
Cardinal's debt and lower its outlook on the health-care services
company. That, combined with a dimmed outlook from Dublin,
Ohio-based Cardinal sent shares tumbling 13% premarket to
$71.40.
Fitch, which rates Cardinal's debt at three notches above junk,
said it expects leverage will remain elevated for an extended
period.
Cardinal said, in conjunction with the deal, it expects adjusted
profit for this year to be at the bottom of its previous guidance
range of $5.35 to $5.50 a share, and it guided for adjusted
earnings in 2018 to be flat to down mid-single digits. Analysts had
expected 9.2% growth for next year, according to Thomson
Reuters.
The three businesses included in the deal -- patient care, deep
vein thrombosis, and nutritional insufficiency -- generated roughly
$2.4 billion in combined revenue over the past four quarters. The
transaction also includes 17 manufacturing facilities.
Medtronic, which originally bought the trio of businesses as
part of its tie-up with Covidien PLC in 2015, will keep its
respiratory and monitoring operations as well as its renal care
businesses.
Dublin, Ireland-based Medtronic said it will set aside $1
billion of the after-tax proceeds -- estimated at about $5.5
billion -- for stock buybacks in fiscal 2018, and will use the
remainder to pay down debt.
Medtronic said the deal helps the company's debt leverage ratio,
and gives it cash for investment in higher-growth and higher-margin
opportunities.
Medtronic's shares climbed 1% to $81.15 premarket.
The transaction is expected to close in Medtronic's fiscal 2018
second quarter, which ends in October, and add 12 cents to 18 cents
to the company's full-year adjusted per-share earnings.
Write to Anne Steele at Anne.Steele@wsj.com
(END) Dow Jones Newswires
April 18, 2017 09:23 ET (13:23 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Cardinal Health (NYSE:CAH)
Historical Stock Chart
From Aug 2024 to Sep 2024
Cardinal Health (NYSE:CAH)
Historical Stock Chart
From Sep 2023 to Sep 2024