Cardinal Health to Sell Its Drugmaking Unit for a Surprising $3.3 Billion

Cardinal Health Inc., the second-biggest U.S. drug distributor, announced yesterday it is selling its drug manufacturing and packaging division to the private equity firm Blackstone Group for $3.3 billion. The unit contracts with pharmaceutical companies to manufacture prescription and over-the-counter drugs, aiming to be a one-stop outsourcing shop for drugmakers. The sale of the unit is a result of the company's disappointment with its performance, and the desire of Cardinal's new CEO R. Kerry Clark to refocus the company on its core business. U.S. drug distribution is dominated by the so-called "Big Three" - Cardial, McKesson Corp. and AmerisourceBergen Corp. In the 90s, the three launched into acquisition and expansion based growth, but have since turned back the clock and are making efforts to return to their roots. Cardinal announced it plans to sell its drug manufacturing unit in November, and it was slated to be put up for auction, but Blackstone stepped in, offering $3.3 billion -- far higher estimated price tag of $2.1-$3 billion. In an interview Blackstone rep Chinh Chu said Cardinal is a great health-care play because of high organic growth and its market leadership position. In a conference call, Clarke called the sale, "a very good deal." Separately Cardinal announced it will buy SpecialtyScripts pharmacy of Massachusetts for an undisclosed amount. Shares were up 3.4% to $72.42 in trading yesterday.

• Sources: Wall Street Journal, Bloomberg (I, II)
• Related commentary: Cardinal Health: Waiting for an Entry Point, Multiple Symptoms of Excessive Pay at Cardinal Health, Jim Cramer's Take on CAH
• Potentially impacted stocks and ETFs: Cardinal Health Inc. (CAH), McKesson Corp. (MCK), AmerisourceBergen Corp. (ABC). ETFs: iShares Dow Jones US Pharmaceuticals (IHE), iShares Dow Jones US Healthcare (IYH), Pharmaceutical HOLDRs (PPH), Vanguard Health Care (VHT), Health Care Select SPDR (XLV)

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Comments

[Adam Fein:]

Nice to have the cash, but what do they do now that they are focusing on "the core"?

Here are my 3 suggestions:
3 Ways for Drug Wholesalers to Grow

Adam
DrugChannels.blogspot....

2007 Jan 26 11:45 AM

[Latha:]

It would be great if you have provided the drug name as well

2008 Jul 31 05:51 PM