CAH Cardinal Health Inc

By Anne Steele and Joseph Walker 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 22, 2017).

Cardinal Health Inc. is exploring a sale of its China distribution operations, marking a potential exit from the region's fast-growing pharmaceuticals market.

In a note to investors Thursday, the company said it was exploring strategic alternatives for Cardinal Health China.

"The China market clearly has outstanding potential for further growth," the note said. "The challenge, however, is that to take full advantage of this growth -- and properly serve the market -- will require continued investments of capital and resources to build out the business."

The Shanghai-based unit distributes branded and generic drugs and operates direct-to-patient specialty pharmacies. It employs about 2,300 across China, and the company said it serves more than 10,000 customers.

Reuters reported earlier about Cardinal Health's plans and that the company had drawn interest from firms willing to pay up to $1.5 billion in a deal.

In 2010, Cardinal extended its reach in China when it acquired Zuellig Pharma China, the country's largest drug importer, for $470 million, including debt. Zuellig had annual sales exceeding $1 billion at the time.

If Cardinal does sell the unit, the company would be exiting China's fast-growing pharmaceuticals market as government regulators look to exert greater oversight of the industry. In February, the Chinese government issued its plans for reform of the industry, including asking state agencies to encourage consolidation of drug manufacturers and distributors, according to an article published by corporate law firm Sidley Austin LLP.

A deal could also give Cardinal more leeway to expand its medical-supplies business overseas. In April, Cardinal agreed to acquire Medtronic PLC's medical-supplies business for $6.1 billion, which it plans to finance with $4.5 billion in new debt. The Medtronic unit's product lines include feeding tubes and blood-collection devices.

Cardinal Health said other entities, including heart-product business Cordis, will continue to work in China, and noted it will build out Asia-Pacific operations following the Medtronic acquisition.

"We think it makes sense for [Cardinal] to focus its time and capital on medical," Barclays said in a note to clients on Thursday.

Cardinal could use proceeds from the sale of its Chinese unit to pay down some debt from the Medtronic deal and potentially reduce its annual interest expense by $60 million to $80 million annually, Barclays said in the note.

Write to Anne Steele at Anne.Steele@wsj.com and Joseph Walker at joseph.walker@wsj.com

(END) Dow Jones Newswires

July 22, 2017 02:47 ET (06:47 GMT)

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