Cardinal Health sells ailing Cordis unit to private equity firm for $ 1 billion

Short dive:

Medical supplies and drug distributor Cardinal Health on Friday announced it has signed a definitive agreement to sell its Cordis business to private equity firm Hellman & Friedman for approximately $ 1 billion. Cardinal in 2015 bought the manufacturer of cardiovascular devices from Johnson & Johnson for $ 1.9 billion, but in subsequent years it was haunted by integration problems. The deal announced Friday with Hellman & Friedman is expected to close in the first half of Cardinal’s fiscal year 2022, which will extend from late 2021 to early 2022. The divestiture will decrease Cardinal’s medical segment profit by approximately $. 60 million to $ 70 million year-on-year, according to the Dublin, Ohio-based drug and medical device distribution giant. While most of the assets and liabilities associated with the Cordis business will be transferred to H&F, Cardinal will retain full responsibility and authority for legal actions related to inferior vena cava filters in the United States and Canada.

Deep dive:

Cordis, which manufactures medical devices for diagnostics and interventional procedures for the treatment of patients with coronary and peripheral vascular disease, is a company with revenues of approximately $ 750 million.

But it produced its share of a headache for Cardinal.

In July, Cardinal was named as a defendant in 334 coordinated product liability lawsuits in the California Superior Court of Alameda County involving claims from approximately 4,280 plaintiffs reporting personal injury associated with the use of vena cava filter products. lower Cordis OptEase and TrapEase. A further 31 lawsuits involving similar claims by approximately 36 plaintiffs are pending in other jurisdictions.

Cardinal CEO Mike Kaufmann said in a statement that the decision to divest Cordis was based on efforts to focus resources on strategic growth areas “of which we are an advantageous owner.”

The executive also said Cardinal remains engaged in medical distribution and global medical product operations, with a product portfolio generally more oriented towards operating and recovery rooms, including gauze dressings for compression, enteral feeding and wound care.

Cardinal’s customers for its medical products and supply chain services include hospitals, laboratories, medical practices, surgical centers and patients at home. The company reported last month that second-quarter revenue for its medical segment increased 7% to $ 4.3 billion, driven by a net positive impact. from COVID-19.

Cardinal expects the sale of Cordis to result in a pre-tax loss of up to $ 120 million in the third quarter of its fiscal year 2021. Additional costs of up to $ 125 million are expected to be incurred primarily in fiscal years 2021 and 2022.

Stephen Mason replaced Jon Giacomin as CEO of Cardinal Health’s medical segment in 2019 and was tasked with addressing the operational and supply chain issues created by the Cordis acquisition from J&J.

Cordis production sites in Miami Lakes, Florida, Santa Clara, California, and Juarez, Mexico, it will move to H&F, whose partners in the deal include investment firm Ajax Health and startup Zeus Health.

KKR partnered with Duke Rohlen in late 2020 to launch Zeus Health, a $ 100 million platform that invests in medical device companies.