21 November 2017

Shanghai Pharmaceuticals to purchase Cardinal Health’s unit

Shanghai Pharmaceuticals Holding is acquiring Malaysia-incorporated Cardinal Health L (Cardinal Malaysia) for USD 1,200 billion, subject to further adjustments based on the target’s working capital, existing cash and assumed debt. The buyer has obtained financing from third party financial institutions and is making the purchase via its Shanghai Pharma Century Global arm. Pending approval from China’s Ministry of Commerce, the deal is expected to complete by the end of Cardinal Health’s fiscal year.

The target is a holding unit which controls all of the China-based business of Cardinal Health, a New York Stock Exchange-listed pharmaceutical supplier. Billed as a global and integrated healthcare services provider, the Dublin and Ohio-headquartered group operates through five segments: pharmaceutical distribution, medical devices distribution, hospital direct sales, speciality pharmaceuticals and speciality pharmacies and commercial technology.

Cardinal Health currently serves almost 11,000 medical institutions and other downstream customers through 30 direct-to-patient pharmacies, 14 direct sales companies and 17 distribution centres in China. It provides drugs, medical devices, surgical supplies, speciality pharmaceuticals, vaccines and diagnostic systems and equipment in major cities ranging from Beijing and Tianjin to Dalian and Wuxi. In all, the business owns a storage area of about 146,000 square metres and 7,000 square metres of cold storage capacity.

Cardinal Malaysia posted operating revenue of CNY 25,518 million (USD 3,848 million) and earnings before interest, tax, depreciation and amortisation of CNY 553 million in H1 2017.  It also had total and net assets of CNY 12,890 million and CNY 1,909 million, respectively, as of 30th June 2017.

The announcement comes as China is planning a reform to tighten oversight of its fragmented healthcare industry, a move that could significantly slow Cardinal Health’s business growth. An unnamed person familiar with the matter previously told Reuters: “The new policy is likely to squeeze margins for most distributors in China. They will be under pressure for future profitability. It does make Cardinal and others worried.”

From Shanghai Pharmaceuticals’ perspective, the deal serves to widen its distribution network, particularly in Shanghai, Beijing, Zhejiang, Tianjin and Chongqing, among other locations. Commenting on the transaction, the buyer’s chairman Zhou Jun said: “Amid the national healthcare reform, the acquisition of the Cardinal Health China business will further strengthen our leadership in the distribution and retail pharmacy network, and expedite our transformation to become a modern global healthcare provider.”

Last July, Cardinal Health successfully carried out its largest deal on record to buy the medical supplies businesses of Medtronic for USD 6,100 million. In a much smaller transaction early this year, Cardinal Health purchased 6 per cent of Navidea Biopharmaceuticals, an Ohio-based diagnostics and radiopharmaceutical medical products maker, for around USD 7 million.

© Zephyr