Report says Chinese unit is up for sale

Cardinal Health is reportedly seeking a buyer for its distribution business in China.

Reuters reported Thursday that the business could be worth up to $1.5 billion. It cited unnamed sources familiar with the matter.

Dublin- based Cardinal is Ohio’s largest company by revenue. It was ranked 15th on the most recent Fortune 500 list.

Cardinal is one of three dominant drug-distribution companies in the U.S., although it also has been growing its medical products side through acquisitions in recent years. The company’s China unit operates 16 distribution centers and generated more than $3.5 billion in revenue last year.

Cardinal did not respond to a request for comment.

Reuters identified three companies as interested in buying Cardinal’s China business: Shanghai Pharmaceutical Holding Co. Ltd., China Resources Pharmaceutical Group Ltd. and Sinopharm Group Co. Ltd.; the news service said none responded to requests for comment. All three are backed by the Chinese government.

Cardinal is said to have hired investment banking and advisory firm Lazard as an adviser for the sale as China plans to institute reforms to the country’s drug-distribution industry. A source told Reuters that Cardinal is concerned that this could slow growth.

In a research note after the news broke on Thursday, stock analyst Eric W. Coldwell of Baird called the news, if true, “somewhat surprising.”

“China performance has been solid for years and (Cardinal’s) messaging on the topic has been consistently positive,” Coldwell wrote. He added, though, that long-discussed government regulatory changes to the drug-distribution business in China are likely to promote consolidation and reduce profitability for distributors.

Cardinal’s shares were little changed in trading Thursday, closing up about half a percent at $77.35. The company is set to announce full-year results for its 2017 fiscal year on Aug. 2.