Cardinal Health announced the completion of a $470 million acquisition of privately held Zuellig Pharma China, a leading health care distribution business in China, known locally as Yong Yu, and the largest pharmaceutical importer in the country. The transaction extends Cardinal Health's distribution and services presence into one of the world's fastest growing health care markets and provides a platform to drive long-term growth.
With today's closing, Cardinal Health is well positioned in the pharmaceutical distribution market in China, which is expected to grow at a compound annual growth rate of 20 per cent through 2014 and become the second largest pharmaceutical market in the world after the United States.
"This is an exciting day for Cardinal Health," said George Barrett, chairman and chief executive officer of Cardinal Health. "The acquisition of Yong Yu follows an extensive evaluation of opportunities to drive growth in targeted geographies outside of North America where we believe our core capabilities would add value. China is an extraordinary market of enormous potential. We are proud to be able to participate in the ongoing evolution of the country's health care system and we are confident that Yong Yu will provide the ideal platform from which to grow our portfolio in China."
Established in 1993 and with annual sales of more than $1 billion, Yong Yu's geographic footprint covers 31 of the 34 provincial-level administrative units in China through its direct-to-customer distribution centre network and its comprehensive network of wholesalers. Yong Yu's offerings span the full distribution value chain from importation to national supply chain management to local direct distribution to approximately 49,000 hospitals and clinics, and more than 123,000 pharmacies. The company also has a growing business distributing medical-surgical products.
Barrett added, "Yong Yu is a superb asset for Cardinal Health and has been operating in China for 17 years. Yong Yu serves virtually all major multinational pharmaceutical companies doing business in China, along with many local Chinese manufacturers. It has a nationwide distribution network with excellent infrastructure and customer service capabilities, strong customer and manufacturer relationships, and a superior management team."
Eric Zwisler, president of Yong Yu, and all the members of the Yong Yu management team have joined Cardinal Health. Zwisler has 23 years of experience in China and 19 years in the pharmaceutical industry.
"The Yong Yu management team is delighted to join Cardinal Health and we are looking forward to drawing on the company's existing capabilities, health care offerings, and supply chain expertise as we continue to grow the China business and better serve our customers," Zwisler said.
As a new platform for the company, Yong Yu will report organizationally to Cardinal Health Chief Financial Officer Jeff Henderson. Financial results of the unit will be reported as part of the company's Pharmaceutical segment. Cardinal Health expects the transaction to be slightly accretive to non-GAAP earnings in fiscal 2011 and more meaningfully accretive in fiscal 2012 and beyond.
Under the terms of the purchase agreement, Cardinal Health assumes approximately $60 million in net debt. The remainder of the purchase price was funded with cash, a large portion of which was from Cardinal Health funds held overseas.
Headquartered in Dublin, Ohio, Cardinal Health, Inc. is a $99 billion health care services company that improves the cost-effectiveness of health care. As the business behind health care, Cardinal Health helps pharmacies, hospitals, ambulatory surgery centres and physician offices focus on patient care while reducing costs, improving efficiency and quality, and increasing profitability.