Medtronic has confirmed a $6.1 billion cash deal with Cardinal Health and the divestment of its patient care, deep vein thrombosis, and nutritional insufficiency businesses, as well as 17 manufacturing facilities. Senior leadership at Medtronic stated they expect the businesses to “thrive” at Cardinal Health.
Rumors began swirling in early Feburary regarding the potential sale of Medtronic’s medical supplies business, which it acquired in 2014 as part of its Covidien acquisition. Though Medtronic CEO Omar Ishrak declined to comment on any ongoing divestment opportunities in the company’s most recent earnings call, sources told Reuters earlier this month that a multi-billion dollar negotiation was in the works with Cardinal Health, a company that already distributed many of the products up for sale.
The agreement includes 23 product categories — including wound care, enteral feeding solutions, electrodes, and dental/animal care — as well as 17 manufacturing facilities and more than 10,000 employees. These businesses generated $2.3 billion in annual revenue over the last four quarters, reported Medtronic in a press release. Neither Medtronic’s respiratory monitoring solutions business nor its renal care solutions business were included in the transaction.
An analyst for Thrivent told the Star Tribune that the deal will free Medtronic of its“lower-tech” product portfolios while allowing the company to focus on “higher-tech” solutions that are more complementary to its core businesses: cardiovascular devices, surgical tools, and insulin pumps.
Ishrak reiterated statements he made in Feburary about the company’s commitment to “disciplined portfolio management,” and noted that the medical supplies segments were expected to flourish under new leadership at Cardinal Health, a company better positioned to give the products the focus and investment they require.
“At the same time, we can put these proceeds to work, investing over the long-term in higher returning internal and external opportunities that are more directly aligned with our growth strategies of therapy innovation, globalization, and economic value,” said Ishrak.
According to George Barrett, CEO of Cardinal Health, the acquisition “fits naturally” into the company’s existing product offering and is complementary to Cardinal’s long-term growth strategy.
“Given the current trends in healthcare, 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 healthcare, reaching customer’s across the entire continuum of care,” said Barrett in a separate press release.
Cardinal Health also was recently awarded a $46 million contract with the DOD to supply laboratory supplies and equipment over the next year, with four one-year option periods, ending in 2022. In 2015, the company was awarded a $1 billion contract to provide medical devices to the U.S. military through 2016.
These developments are intended to offset recent macro-economic slowdowns in generic drug pricing that have forced Cardinal Health to adjust its earnings forecast. Analysts from Cowen & Co told Reuters that the acquisition will “continue to diversify business away from pharma distribution.”