PSSI Pss World Medical Inc. (MM)

McKesson Corporation (MCK) recently announced that it has inked a deal with Emendo Ltd. to acquire the latter. Emendo has developed CapPlan, which is utilized in more than 40 hospitals across New Zealand, Australia, Canada and the UK to optimize operational efficiency by forecasting patient demand and plan resourcing.

CapPlan is a system which forecasts workloads covering long-term and short-term trends. It helps hospitals to allocate resources efficiently and recognize unnecessary costs. CapPlan uses clinician schedules, workloads, patient flow, length of stay and discharges in its forecasting process. The company stated that a 400-bed hospital using CapPlan has saved $895,000 for inpatient areas. We believe the acquisition of Emendo will complement McKesson’s technology solutions segment.

The company has been pursuing acquisitions regularly to supplement organic growth. Last month, McKesson entered into an agreement to buy PSS World Medical, Inc. (PSSI) for $29.00 per share in cash. The total value of the deal, in which McKesson will assume PSS World Medical’s debt, is estimated to be approximately $2.1 billion.

McKesson expects to generate more than $100 million in annual savings (pre-tax) by the fourth year after the closure of the deal. On the second quarter 2013 conference call, the company stated that the deal is expected to add earnings of 15 to 25 cents per share after a year of closing.

The company also announced that it will purchase Med3000, a health care management and technology service company. The deal, expected to be completed in the next few months, should boost the medical billing and practice management services of revenue management solutions at McKesson apart from facilitating its expansion into high potential markets.

Neutral on McKesson

We currently have a Neutral recommendation on McKesson. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

We are encouraged by the company’s acquisition strategy for expansion but the competition in the pharmaceutical distribution market remains tough, which includes players like AmerisourceBergen Corporation’s (ABC).

 
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