Cardinal Health's $6.1 Billion Deal for Some Medtronic Operations Raises Debt Concerns

By Anne Steele 

Cardinal Health Inc. struck a deal to buy part of Medtronic PLC's patient monitoring and recovery unit for $6.1 billion, bringing businesses under Cardinal's roof that it has sought for years but also boosting its debt load.

Cardinal said it will fund the acquisition with $4.5 billion in new debt plus existing cash.

The move prompted Fitch Ratings to voice concerns over Cardinal's debt and lower its outlook on the health-care services company. That, combined with a dimmed outlook from Dublin, Ohio-based Cardinal sent shares tumbling 13% premarket to $71.40.

Fitch, which rates Cardinal's debt at three notches above junk, said it expects leverage will remain elevated for an extended period.

Cardinal said, in conjunction with the deal, it expects adjusted profit for this year to be at the bottom of its previous guidance range of $5.35 to $5.50 a share, and it guided for adjusted earnings in 2018 to be flat to down mid-single digits. Analysts had expected 9.2% growth for next year, according to Thomson Reuters.

The three businesses included in the deal -- patient care, deep vein thrombosis, and nutritional insufficiency -- generated roughly $2.4 billion in combined revenue over the past four quarters. The transaction also includes 17 manufacturing facilities.

Medtronic, which originally bought the trio of businesses as part of its tie-up with Covidien PLC in 2015, will keep its respiratory and monitoring operations as well as its renal care businesses.

Dublin, Ireland-based Medtronic said it will set aside $1 billion of the after-tax proceeds -- estimated at about $5.5 billion -- for stock buybacks in fiscal 2018, and will use the remainder to pay down debt.

Medtronic said the deal helps the company's debt leverage ratio, and gives it cash for investment in higher-growth and higher-margin opportunities.

Medtronic's shares climbed 1% to $81.15 premarket.

The transaction is expected to close in Medtronic's fiscal 2018 second quarter, which ends in October, and add 12 cents to 18 cents to the company's full-year adjusted per-share earnings.

Write to Anne Steele at [e-mail]

(END) Dow Jones Newswires

April 18, 2017 09:23 ET (13:23 GMT)

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