LONDON, UK / ACCESSWIRE / April 19, 2017 / Active Wall St. blog coverage looks at the headline from Cardinal Health, Inc. (NYSE: CAH) and Medtronic PLC (NYSE: MDT). On April 18, 2017, Cardinal Health announced that it has entered into a definitive agreement to acquire Medtronic's Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses for $6.1 billion in cash. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.

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The Acquired Business

Medtronic's Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses encompass 23 product categories across multiple market settings, including numerous industry-leading brands, such as Curity, Kendall, Dover, Argyle and Kangaroo, which are used in approximately every US hospital. Total revenues for these businesses were $2.3 billion for the 12 months ending October 2016 with more than 70% of total sales in the US.

Cardinal stated that the purchase price does not include cash tax benefits of at least $100 million. The Company plans to issue long-term debt to finance the transaction and has obtained a commitment letter from Goldman Sachs Bank USA and Goldman Sachs Lending Partners LLC to provide a $4.5 billion unsecured bridge loan.

Transaction Benefit

Cardinal Health expects the acquisition to be accretive to non-GAAP diluted earnings per share from continuing operations by more than $0.21 per share in FY18, which includes approximately $100 million of inventory step-up costs during the first few quarters following closing. This is net of estimated incremental annual financing-related interest expense of up to $0.39, subject to change based on the Company's ultimate bond pricing and tax rate. The Company expects the acquisition to be accretive to non-GAAP diluted earnings per share by more than $0.55 per share in FY19 and increasingly accretive thereafter. By the end of FY20, the Company assumes synergies will exceed $150 million annually.

"We are thrilled about today's announcement, as this well-established product line is complementary to our medical consumables business and fits naturally into our customer offering. For this reason, this product portfolio has been on our radar for many years," said George S. Barrett, Cardinal Health's Chairman and CEO, "We distribute some of these products today and have been collaborative partners with the leadership of this business. 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 customers across the entire continuum of care."

The transaction is expected to close in Q1 of Cardinal Health's fiscal year 2018, subject to customary closing conditions, including regulatory clearances. Once the transaction is complete, the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses will become part of Cardinal Health's Medical segment, which is led by Don Casey, the segment's Chief Executive Officer.

Medtronic's View of Transaction

Under terms of the definitive agreement, Medtronic is expecting to receive total after-tax proceeds estimated of approximately $5.5 billion. Medtronic intends to allocate $1 billion of the after-tax proceeds for incremental share repurchases in FY18, with the balance used to reduce its debt. Upon closing, the transaction is expected to result in an immediate positive impact to Medtronic`s comparable, constant currency revenue growth rate and non-GAAP comparable, constant currency operating margin of approximately 50 basis points each.

"This is a positive transaction for all involved - Medtronic, Cardinal Health, and our respective shareholders and employees - who we believe will all thrive under this change in ownership. In addition, it signifies our commitment to disciplined portfolio management," said Omar Ishrak, Medtronic's Chairman and CEO, "Medtronic has had a specific focus over the past several years on ensuring that we are delivering compelling clinical and economic value to health systems and patients around the world. Ultimately, we came to the conclusion that these products - while truly meaningful to patients in need - are best suited under ownership that can provide the investment and focus that these businesses 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."

The transaction is expected to result in modest dilution on a net basis to the Company`s fiscal year 2018 non-GAAP earnings per share in the range of approximately $0.12 to $0.18, with the exact amount primarily dependent on the closing date of the transaction.

Cardinal Updates Guidance

Following the acquisition announcement, in a separate press release on the same day, Cardinal Health announced that it is updating its non-GAAP FY17 earnings per share (EPS) guidance, and the Company provided a preliminary view on fiscal 2018 and 2019.

Cardinal Health now believes that fiscal 2017 non-GAAP EPS from continuing operations will be at the lower end of the previously announced guidance range of $5.35 to $5.50, with the EPS update attributable to the forthcoming fourth-quarter results. This takes into consideration generic deflation, which the Company now expects to be in the low-double digits for the full fiscal year.

Using the updated fiscal 2017 guidance as a base, Cardinal Health's preliminary FY18 view is for non-GAAP EPS to be flat to down mid-single digits. For FY18, the Company is expecting a significant increase in the Medical segment's profit, including the contributions from the Medtronic's business acquisition, which is expected to contribute at least $0.21 non-GAAP EPS accretion in fiscal 2018, assuming the completion of transaction in Q1 FY18.

Furthermore, Cardinal Health is expecting fiscal 2019 non-GAAP EPS to grow at least high-single digits versus fiscal 2018. The Company expects to provide an update to its fiscal 2018 preliminary outlook at its fourth-quarter earnings call later this year.

Stock Performance

At the closing bell, on Tuesday, April 18, 2017, following the acquisition and outlook announcement, Cardinal Health's share price finished the trading session at $72.39, slumping 11.54%. A total volume of 13.33 million shares exchanged hands, which was higher than the 3 months average volume of 1.96 million shares. Furthermore, since the start of the year, shares of the Company have gained 1.14%. The stock is trading at a PE ratio of 17.41 and has a dividend yield of 2.49%. At Tuesday's closing price, the stock's net capitalization stands at $22.84 billion.

Medtronic's stock slightly fell 0.04%, ending yesterday's trading session at $80.33. A total volume of 4.54 million shares were traded at the end of the day. In the last three months and previous twelve months, shares of the Company have advanced 6.51% and 5.17%, respectively. Moreover, the stock gained 13.38% since the start of the year. The Company's shares are trading at a PE ratio of 28.36 and have a dividend yield of 2.14%. The stock currently has a market cap of $109.96 billion.

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