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Cardinal Health sinks after announcing loss of Walgreen business

Cardinal Health (CAH) is tumbling after the company announced that it would lose its drug procurement business with Walgreen (WAG). The drug store chain, which had previously obtained its branded drugs from Cardinal, will not renew its contract with Cardinal when their deal expires in August, Cardinal reported. Instead, Walgreen will obtain drugs from AmerisourceBergen (ABC), Walgreen announced. As part of a 10 year deal with AmerisourceBergen, Walgreen will receive the right to buy a stake of up to 23% in that company, Walgreen added. Cardinal's sales to Walgreen accounted for about 21% of its revenues in fiscal 2012, Cardinal noted. Cardinal, which said that it would not lose Walgreen as a customer until fiscal 2014, expects its fiscal 2014 earnings per share to be "at least similar" to the level in fiscal 2013. In a note to investors today, Lazard Capital analyst Tom Gallucci responded to the news by downgrading Cardinal Health to Neutral from Buy. The loss of Walgreen's business to a competitor could weigh on Cardinal's shares in the near to intermediate term, the analyst believes. Cardinal will lose at least 30c of earnings per share as a result of Walgreen's decision, but should be able to lessen the impact to the bottom line over time through cost cutting, added Gallucci. In late morning trading, Cardinal Health sank $3.10, or 6.7%, to $43, while AmeriSourceBergen jumped 7%, or $3.30, to $51.60 and Walgreen rose 5.47% to $44.75.