Cardinal Health, the leading provider of products and services supporting the health-care industry, has announced plans to divest its Pharmaceutical Technologies and Services (PTS) segment, a business that manufactures or packages 100 billion doses of medication every year for pharmaceutical and biotech firms, employs approximately 10,000 at more than 30 facilities worldwide and generates $1.8 billion in revenue.
The company said the decision was made to focus Cardinal Health's capabilities and resources to better serve health-care provider customers, such as hospitals and pharmacies.
"In the coming years, Cardinal Health will focus more on our products and services that help providers improve the safety and productivity of health care," said R. Kerry Clark, president and chief executive officer of Cardinal Health. "While synergies clearly exist between PTS and our other businesses, we believe there is greater customer and shareholder value in the expansion of our supply-chain and medical and clinical products businesses domestically and internationally. These segments align with our core competencies and customers, and we see significant opportunities for future growth and improved return on capital."
The company expects to use the proceeds to repurchase Cardinal Health shares. In anticipation, the board has initially authorized an additional $1 billion, bringing the company's total repurchase authorization to $3 billion for fiscal 2007 and 2008. To date in fiscal 2007, the company has purchased approximately $500 million in shares and plans to complete a total of $1.5 billion by the end of fiscal 2007. Cardinal Health will also continue to invest in organic growth and tuck-in acquisitions to strengthen existing product and service offerings.
Cardinal Health will retain Martindale and Beckloff Associates, two businesses that support the generic pharmaceutical market. Martindale develops generic, intravenous medicine that is complementary to Cardinal Health's hospital business and generics strategy. Beckloff provides regulatory consulting services, including for cardinal health generic products. Combined, these businesses have approximately 400 employees at two primary locations in the US and UK.
PTS is the leading contract manufacturing and service provider for the pharmaceutical industry. As a standalone company excluding Martindale and Beckloff, Cardinal Health estimates the business would generate in excess of $300 million in earnings before interest, taxes, depreciation and amortization1. Among its core offerings, it develops and manufactures oral and sterile medication in nearly all dosage forms, and holds patents for softgel and Zydis fast-dissolve technologies used in many popular prescription and over-the-counter medicine. The segment is also the largest contract packager of pharmaceuticals.
Cardinal Health said there would have been no change to its fiscal 2007 earnings per share (EPS) guidance had it not made the decision to sell PTS. However, based on the decision, results for PTS will be treated as discontinued operations in its financial statements, and the company issued new, consolidated EPS guidance for fiscal 2007. Non-GAAP diluted EPS from continuing operations2 for fiscal 2007 is now expected to be in the range of $3.25 to $3.40. All growth goals for the four remaining segments are unchanged from previous communications.
Excluding the impact of any proceeds from the PTS divestiture, Cardinal Health reaffirmed its long-term financial goal of 12 per cent to 15 per cent growth in non-GAAP diluted EPS from continuing operations, and expects to be within that range for fiscal 2008. Depending on the timing of the divestiture, the company expects proceeds from the transaction should further add materially to fiscal 2008 EPS growth. the company also expects each of its four remaining segments to perform within or above the previously announced long-term earnings goals in fiscal 2008.