Cardinal Health Exploring Options for China Unit -- Update
July 21 2017 - 12:45PM
Dow Jones News
By Anne Steele and Joseph Walker
Cardinal Health Inc. is exploring a sale of its China
distribution operations, marking a potential exit from the region's
fast-growing pharmaceuticals market.
In a note to investors Thursday, the company said it was
exploring strategic alternatives for Cardinal Health China.
"The China market clearly has outstanding potential for further
growth," the note said. "The challenge, however, is that to take
full advantage of this growth -- and properly serve the market --
will require continued investments of capital and resources to
build out the business."
The Shanghai-based unit distributes branded and generic drugs
and operates direct-to-patient specialty pharmacies. It employs
about 2,300 across China, and the company said it serves more than
10,000 customers.
Reuters reported earlier about Cardinal Health's plans and that
the company had drawn interest from firms willing to pay up to $1.5
billion in a deal.
In 2010, Cardinal extended its reach in China when it acquired
Zuellig Pharma China, the country's largest drug importer, for $470
million, including debt. Zuellig had annual sales exceeding $1
billion at the time.
If Cardinal does sell the unit, the company would be exiting
China's fast-growing pharmaceuticals market as government
regulators look to exert greater oversight of the industry. In
February, the Chinese government issued its plans for reform of the
industry, including asking state agencies to encourage
consolidation of drug manufacturers and distributors, according to
an article published by corporate law firm Sidley Austin LLP.
A deal could also give Cardinal more leeway to expand its
medical-supplies business overseas. In April, Cardinal agreed to
acquire Medtronic PLC's medical-supplies business for $6.1 billion,
which it plans to finance with $4.5 billion in new debt. The
Medtronic unit's product lines include feeding tubes and
blood-collection devices.
Cardinal Health said other entities, including heart-product
business Cordis, will continue to work in China, and noted it will
build out Asia-Pacific operations following the Medtronic
acquisition.
"We think it makes sense for [Cardinal] to focus its time and
capital on medical," Barclays said in a note to clients on
Thursday.
Cardinal could use proceeds from the sale of its Chinese unit to
pay down some debt from the Medtronic deal and potentially reduce
its annual interest expense by $60 million to $80 million annually,
Barclays said in the note.
Write to Anne Steele at Anne.Steele@wsj.com and Joseph Walker at
joseph.walker@wsj.com
(END) Dow Jones Newswires
July 21, 2017 12:30 ET (16:30 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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