Cardinal Health to sell its drug unit.Company wants to focus on hospital, pharmacy clients
Cardinal Health plans to jettison its drug-making-and-packaging
business and focus more on providing products and
services to hospitals, pharmacies and other health-care
providers.
Dublin-based Cardinal said yesterday that it will
sell its Pharmaceutical Technologies and Services
division, which has $1.8 billion in annual sales.
The business makes or packages 100 billion doses
of medication each year for drug and biotechnology
companies. It employs 10,000 at more than 30 plants
worldwide.
Proceeds from the sale, which one analyst estimated
could be as high as $3.6 billion, will be used to
buy back Cardinal stock.
Many Wall Street analysts reacted favorably yesterday
to Cardinal's decision, and the company's shares jumped
4.5 percent in active trading to close at $64.62.
"Investors will view this as a significant positive
for Cardinal," Barbara Ryan, a health-careindustry
analyst for Deutsche Bank Securities in Greenwich,
Conn., wrote to clients yesterday.
Ryan raised her rating of Cardinal stock to "buy"
from "hold."
She said the division "had recently been struggling
to maintain its competitive position" and doesn't
fall within Cardinal's core strengths.
Bank of America analyst Robert Willoughby told his
clients yesterday that an investment group would be
the most likely suitor for the profitable drugmaking
division.
He said the business could fetch $2.5 billion, while
JPMorgan securities analyst Lisa Gill estimated the
sale could generate between $2.4 billion and $3.6
billion.
Although no buyer has been identified, company officials
still expect the division to be sold by July.
Even with the divestiture, Cardinal will remain among
the world's largest medical suppliers. Annual revenue
is expected to continue to be in excess of $80 billion.
Most of the company's sales come from wholesale drug
distribution. Other businesses include medical products
distribution and manufacturing, and medication management.
R. Kerry Clark, Cardinal's president and CEO, yesterday
called the divestiture a "strategic choice"
that will allow the company to spend more time and
money serving health-care providers.
Although the drug-makingand-packaging business is
profitable, it did not fit strategically with Cardinal's
long-term strategy to help providers improve safety
and productivity, he told investors.
Merrill Lynch analyst Thomas Gallucci said that the
decision to sell the division is Clark's first major
move since becoming CEO in April.
"We appreciate the direction he seems to be
going in," Gallucci told clients, noting that
the drug-making division "has been a consistently
volatile and oftentimes underperforming business."
Cardinal will continue to invest in expanding the
company's businesses and making targeted acquisitions,
Clark said.
Among the initiatives are international expansion,
infection prevention and new supply-chain services.
Typical of recent acquisitions was July's purchase
of Med-Mined, a Birmingham, Ala., company that creates
products that allow hospitals to track and identify
infections spread to patients.
With proceeds from the drugmaking division's sale
earmarked for buying back Cardinal stock, the company's
board in anticipation has authorized $1 billion initially
for that purpose.
That boosts the company's share-repurchase authorization
to $3 billion for its current fiscal year, 2007, and
fiscal 2008. Cardinal has bought back $500 million
in shares this year.
Two businesses within Pharmaceutical Technologies
and Services will be retained. They are Martindale,
which develops generic intravenous medicine that complements
Cardinal's hospital business and focuses on generics,
and Beckloff Associates, a regulatory consulting service.
Martindale and Beckloff have combined revenue of
$100 million.
