Cardinal to buy vascular health unit Cordis, $1.9bn

Mar 02, 2015, 4:02 PM EST
NEW YORK, NY - NOVEMBER 19: Chairman at Johnson & Johnson Alex Gorsky speaks on stage at the 2nd Annual Save The Children Illumination Gala at the Plaza on November 19, 2014 in New York City.
Michael Loccisano/Getty Images for Save The Children

Cardinal Health will buy Johnson & Johnson’s vascular technology unit Cordis for $1.9 billion. Reuters writes that the move has Johnson & Johnson completing its exit from the cardiovascular stent business. Cardinal, one of the largest U.S. drug distribution companies, is expanding its medical equipment offerings for physicians. "While this transaction is not without obvious risks and does mark a change in CAH's overall business mix/business model, we believe the financial attractiveness outweighs this fact," Evercore ISI analyst Ross Muken said in a research note.

Cardinal, which expects the deal to close by the end of calendar year 2015, said the acquisition will be slightly dilutive to earnings in the fiscal year ending June 2016. It expects the deal to then boost earnings by 20 cents per share in the fiscal year ending June 30, 2017, and it sees cost savings of $100 million by the end of fiscal 2018. Cardinal's chief executive, George Barrett, said the company may make more acquisitions in cardiology and endovascular treatment as well as in the trauma and wound care segment.

Cardinal Chief Executive George Barrett said the company is focused on medical products that have become commoditized--such as catheters and guidewires--as the potential for differentiation has become limited, notes the Wall Street Journal. Cardinal has focused its efforts on areas including wound management, cardiovascular and orthopedics in recent years. J&J, meanwhile, is working to pare its wide-ranging portfolio to focus on higher-growth businesses and reduce costs. J&J, a pioneer in stents that prop open clogged heart arteries, said years ago that it would get out of that business.

Cardinal will have a more powerful competitor to cardiovascular device companies like Abbott Laboratories, Boston Scientific Corp. and Medtronic Plc., said Larry Biegelsen, an analyst at Wells Fargo in New York, according to Bloomberg. Signaling a shift, Cardinal’s management also sees an opportunity to build a generic medical devices business in segments where products have become commodities, Biegelsen said in a note. “This is a significant step forward in our cardiovascular strategy,” George Barrett, Cardinal’s chief executive, said in a statement Monday. Based in Fremont, California, Cordis had annual sales of about $780 million last year, split almost evenly between cardiology and endovascular products. About 70 percent of Cordis’s sales come from outside the U.S., in more than 50 countries, including China, Germany, Italy and the U.K.