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4-Traders Homepage  >  Equities  >  Nyse  >  Cardinal Health Inc    CAH

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Cardinal to Buy Home-Medical Firm AssuraMed for $2.07 Billion

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02/14/2013 | 02:26pm CEST

By Jon Kamp

--Cardinal paying $2.07 billion to tap growing home-care market

--Deal adds to Cardinal's existing medical-supplies franchise

--Cardinal sees earnings benefit from fast-growing AssuraMed

Drug wholesaler and medical-products company Cardinal Health Inc. (>> Cardinal Health, Inc.) said Thursday it will acquire closely held medical-supplier AssuraMed for $2.07 billion to reach into a growing home-care market.

AssuraMed currently serves more than one million patients nationally with more than 30,000 products, including supplies for respiratory issues, incontinence and diabetes. The company bought Invacare Corp.'s (>> Invacare Corporation) domestic medical-supplies business for $150 million last month. Including that business, Cardinal Heath said AssuraMed had 2012 revenue of $1 billion.

Cardinal cited government data showing this market growing sales at a 7%-and-rising clip, but said AssuraMed has historically grown at more than twice that pace. Though AssuraMed will represent only about 1% of total Cardinal sales, it has higher profit margins, and Cardinal expects an earnings benefit.

Dublin, Ohio's Cardinal gets most of its sales from a pharmaceutical business that includes drug distribution. Cardinal also has a medical segment that distributes an array of medical, surgical and lab products, but is focused today on hospitals and other professional customers.

The AssuraMed deal will extend Cardinal into growing home-care market fueled by aging baby boomers and health payers--from the government to private insurers--looking for cost effective ways to manage patients with chronic illness or on-the-mend from accidents and surgery.

"The general gravitational pull is toward more care moving toward the home," said George Barrett, Cardinal's chairman and chief executive, in an interview.

Cardinal shares rose 2.1% to $46.38 in recent trading. They are up nearly 13% so far this year.

Mr. Barrett believes the home-health business will help Cardinal's relationship with existing customers, since the health system is shifting toward rewarding health providers for patient outcomes, rather than the volume of service provided. This can mean caregivers taking on more responsibility for patients as they move from hospitals to rehabilitation centers or their own homes.

The deal "connects to the dialogue that we're having with our partners," Mr. Barrett said in an interview. It "makes us a more relevant strategic partner to them."

Cardinal said AssuraMed leads a fragmented, roughly $16 billion market for the products it supplies. The company is split into two main businesses: a wholesale distributor that sends products to commercial customers, such as home medical-equipment suppliers, and another business that ships directly to patients' homes.

Cardinal expects the deal to add two cents to three cents a share to its fiscal 2013 adjusted earnings, assuming the deal closes by early April. The company also estimates its will boost fiscal 2014 adjusted earnings by at least 18 cents a share.

Additionally, Cardinal expects at least $50 million in deal-related savings by 2016, and for growing savings thereafter.

Cardinal is financing the deal with $1.3 billion in new senior, unsecured notes and cash. Debt-ratings firm Fitch Ratings called the transaction "strategically sound" while saying it should bolster Cardinal's intermediate-term growth outlook.

The medical-products deal comes as Cardinal faces some big questions in its drug wholesale business. The company is working to try and keep its two biggest customers, the drugstore chains CVS Caremark Corp. (>> CVS Caremark Corporation) and Walgreen Co. (>> Walgreen Company), after existing contracts with both companies end this summer.

--Melodie Warner contributed to this article.

Write to Jon Kamp at jon.kamp@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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Financials ($)
Sales 2016 121 304 M
EBIT 2016 2 855 M
Net income 2016 1 390 M
Debt 2016 2 825 M
Yield 2016 1,68%
P/E ratio 2016 19,66
P/E ratio 2017 16,60
EV / Sales 2016 0,25x
EV / Sales 2017 0,22x
Capitalization 27 039 M
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Mean consensus OUTPERFORM
Number of Analysts 19
Average target price 90,8 $
Spread / Average Target 9,4%
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NameTitle
George S. Barrett Chairman & Chief Executive Officer
Michael C. Kaufmann Chief Financial Officer
Patricia B. Morrison Chief Information Officer
Calvin Ramarro Darden Independent Director
Gregory B. Kenny Lead Independent Director
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