Medtronic PLC, the Minnesota-run maker of high-tech implantable medical devices, has finalized a corporate deal to spin out several brands of basic medical supplies like Curity gauze sponges to a health care supply company.
Medtronic closes on $6.1 billion sale of supply lines to Cardinal Health
The previously announced deal involves lower-margin products widely used in hospitals.
August 1, 2017 at 1:02AM
Medtronic said Sunday afternoon that it had completed its previously announced sale of assets to Ohio-based medical supplier Cardinal Health in a $6.1 billion deal. The deal includes brands used in virtually every hospital in America, including Curity sponges, Kendall wound dressings and Dover urological drainage bags.
"This business provides our customers with more product offerings and includes some well-established brands that fit naturally within our portfolio and are complementary to our current medical products business," Cardinal Health Chief Executive George Barrett said in a news release. "We know these products and many of the employees well."
Medtronic is mainly known for big-ticket medical devices, many of which are implanted inside the body and carry higher sales margins than commodity supplies like surgical sponges. In 2015, Medtronic paid roughly $50 billion to acquire surgical supplier Covidien PLC, which brought a mix of higher-end tools like the superDimension bronchoscope for lung biopsies along with high-volume medical supplies businesses like Curity.
All told, the spinout to Cardinal Health includes 23 categories of products in patient care, deep vein thrombosis, and nutritional insufficiency, all of which were included in the patient monitoring and recovery (PMR) division of Medtronic's minimally invasive therapies group. The PMR division had sales of $1.1 billion in the most recent quarter, a 4 percent increase.
During an earnings call in May, Medtronic Chief Executive Omar Ishrak said the deal to divest some of the products in the PMR division that Medtronic had acquired just over two years earlier through its Covidien deal was a "positive transaction for all involved, including our shareholders and employees, who, we believe, will thrive" under the ownership change.
"We are committed to disciplined portfolio management, and we reached the conclusion that these businesses, while truly meaningful to patients in need, are best suited under ownership that can provide the investment and focus that these businesses require," Ishrak said on the May earnings call.
The sale will dilute Medtronic's adjusted earnings by 18 cents per share for the full fiscal year that will end in April 2018.
Ishrak said the sale will have an immediate positive impact on Medtronic's margins and revenue-growth rates, and that the company intends to keep investing in businesses inside and outside the company that are "more directly aligned" with Medtronic's growth strategies and its focus on financial returns.
Most of the proceeds from the $6.1 billion sale will be used to pay down Medtronic debt.
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