Leading distributor of pharmaceuticals and medical supplies Cardinal Health (CAH) recently revealed plans to acquire AssuraMed, a privately held provider of medical supplies for patients in the residential setting. The consideration is about $2.07 billion or $1.94 billion adjusted for tax issues. The deal is subject to standard closing terms including regulatory approval.
Cardinal Health will fund the takeover through a mixture of $1.3 billion in fresh unsecured senior notes and cash. The deal is expected to culminate in early April 2013.
For fiscal 2013, Cardinal Health forecasts adjusted earnings per share from continuing operations within a band of $3.42 and $3.50. The company forecasts accretion of 2 cents to 3 cents to its adjusted earnings per share forecast for fiscal 2013. For fiscal 2014, Cardinal Health expects accretion to adjusted earnings per share of a minimum of 18 cents. The company did not divulge the impact of the deal on reported earnings per share for fiscal 2013 and 2014 since the effect partly depends on the timing of the closure.
AssuraMed provides over 30,000 items to over a million individuals across the nation. It had sales of about $1 billion in calendar 2012. The company functions through two major units, Edgepark Medical Supplies and Independence Medical. The acquisition of AssuraMed will increase Cardinal Health’s penetration in the home segment. It will also enable the company to furnish a complete set of pharmacy and medical equipment offerings to clients in the home setting.
Cardinal Health is ranked among Fortune 500 companies. With about $100 billion in annual sales, the company remains one of the largest distributors of pharmaceuticals and medical supplies in the U.S., with a diversified product portfolio, which may partly insulate it from the current economic uncertainty.
Cardinal Health stands to gain from the gradual shift in mix from bulk to the higher margin non-bulk sector of the Pharmaceutical segment. Its mainstay Pharmaceutical segment is heavily influenced by the generic wave. Overall, Cardinal Health is benefiting from a spate of tuck-in acquisitions and capital deployment strategies. The company continues to deploy capital to boost investor confidence via share repurchases and dividend hikes.
However, Cardinal Health faces tough competition across all its business segments, which may continue to pressure pricing and margins. The company recently suffered the loss of the major contract with Express Scripts Holding Company (ESRX).
Cardinal Health currently carries a Zacks Rank #3 (Hold). Rite Aid Corporation (RAD) and AmerisourceBergen Corporation (ABC) carry Zacks Rank #1 (Strong Boy) and Zacks Rank #2 (Buy), respectively, and are expected to do well.
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