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Medtronic's medical supplies unit may go to Cardinal Health for $6 billion

por Thomas Dworetzky, Contributing Reporter | April 07, 2017
Business Affairs Medical Devices
Medtronic may be nearing a sale of its medical supplies unit to Cardinal Health.

The deal could be worth about $6 billion, sources told Reuters.

A deal for the medical supplies unit has been rumored since Medtronic acquired Covidien for $42.9 billion, announced in 2014. That brought much of the supplies business into its portfolio.

The talks between the two are “exclusive” at this point, the source told the news service, adding that the deal could happen this month.

Cardinal has made it a priority to boost its medical products business, either through acquisition or internal growth.

“From an overall capital deployment strategy, we would always look at opportunities that fit strategically and create long-term value for our shareholders,” Ellen Barry, a Cardinal spokeswoman, told the news service.

In a conference call last month, George Barrett, Cardinal Health's chief executive officer, spoke about the efforts to grow business, noting, "certainly a part of the equation for us is how we use our balance sheet, and that may be through activities that are available external to us and the other ways that we deploy capital," according to Reuters.

For example, the company bought Cordis from Johnson & Johnson in 2015 for about $2 billion, which added a variety of supplies, such as catheters and stents, to its offerings.

Medtronic planned to take a “disciplined approach in reviewing our portfolio and only go forward if it makes sense, given our strategic priorities,” stated spokesman Jeff Trauring.

In January, when rumors of the possible sale of the Medtronic unit surfaced, the value was put a $5 billion,
according to a Bloomberg report at the time.

An unnamed source told the news agency that these assets had earnings before interest, taxes, depreciation and amortization of around $500 million and advised that they would go for “eight to 10 times that amount.”

When the Covidien acquisition was announced, Medtronic CEO Omar Ishrak told Bloomberg that the reasons for the deal were “strategic and operational alignment,” adding that it “will drive better value for patients and customers around the world.”

Ishrak noted at the time that, "this acquisition will allow Medtronic to reach more patients, in more ways and in more places," adding that, “our expertise and portfolio of services will allow us to serve our customers more efficiently and better address the demands of the current health care marketplace."

Even when the deal happened, however, it seemed that the “commodity” medical supply business was an unlikely fit with much of the higher-technology Medtronic business, such as pacemakers and neurostimulators.

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