Cardinal buys three units of Medtronic

Cardinal Health has made an anticipated deal to buy three medical-supply units from Medtronic for $6.1 billion. It is one of Cardinal’s biggest medical-products acquisitions.

Medtronic has its global headquarters in Ireland but has an operational headquarters in Minneapolis. The units being acquired have a presence that includes operations in about a dozen states.

Under the deal, 10,000 Medtronic employees will be absorbed into Dublin-based Cardinal’s worldwide workforce of 40,000. The three units are focused on patient care, deep-vein thrombosis and nutritional insufficiency and make products as varied as hypodermic needles, surgery kits and feeding pumps.

It’s not clear whether the acquisition will bring more employees to central Ohio, where Cardinal has more than 5,000 workers, Cardinal spokeswoman Ellen Barry said.

Cardinal had been the rumored frontrunner for the Medtronics units for weeks but declined to comment on earlier reports. Medtronic

had been looking to sell the businesses, which it acquired in the purchase of Covidien in 2014.

Although analysts have expressed support for the acquisition, Cardinal’s shares fell sharply Tuesday, closed down 11.5 percent as the company issued new earnings guidance for fiscal 2017. The forecast came in at the low end of its previously predicted range of $5.35 to $5.50 per share because the company expects lower prices for its generic drugs.

Charles Rhyee, an analyst for Cowen and Co., maintained a neutral “market perform” rating on Cardinal shares in a research note issued after the announcement of the acquisition of the Medtronic units. They had revenue of $2.3 billion in the most recent fiscal year, compared with Cardinal’s annual revenue of more than $120 billion.

Rhyee said the acquisition “fits well” with Cardinal’s business and helps the company to continue diversifying away from its drugdistribution business, which has a lower profit margin.

Rhyee added, though, that stabilization of the market for the pharmaceutical side, which accounts for most of Cardinal’s revenue and has seen great price pressure recently, “appears to be on the horizon but is further out than we had expected,” judging by the earnings guidance.

Rhyee said he likes the Medtronic deal for several reasons. It expands Cardinal’s U.S. presence, whereas its earlier acquisition of Cordis, a maker of devices to treat heart and vascular ailments, is more internationally focused. Also, it makes the medical segment a significantly larger contributor to Cardinal’s overall revenue.

In a conference call after the announcement, Cardinal Chairman and CEO George Barrett called Medtronic’s products “complementary” to Cardinal’s existing medical segment, adding that the products have been “on our radar for many years.”

“We distribute some of these products today and have been collaborative partners with the leadership of this business.”

Barrett called Medtronic’s business one that is “highly stable and generates strong cash flows.” He noted that it will add “highquality manufacturing operations” to Cardinal.

The company said it will pay for the transaction with cash on hand and $4.5 billion in new senior unsecured debt.