Cardinal Health Inc. plans to acquire Kinray Inc. for $1.3 billion and has completed a $470 million purchase of Yong Yu, the largest drug importer in China.

Cardinal Health, Kinray, Yong Yu, Zuellig Pharma China, acquisition, drug importer, China, pharmaceutical distributor, George Barrett, Geoff Walden, Eric Zwisler, independent pharmacies, independent drug store, community pharmacy, Stewart Rahr, health care, wholesaler

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Inside This Issue - News

Acquisitions extend reach of Cardinal Health

December 6th, 2010

DUBLIN, Ohio – Cardinal Health Inc. plans to acquire Kinray Inc. for $1.3 billion and has completed a $470 million purchase of Yong Yu, the largest drug importer in China.

The Kinray deal will significantly expand the No. 2 pharmaceutical distributor’s ability to serve independent pharmacies in the Northeast, while the Yong Yu acquisition gives Cardinal a growth platform in China.

The Kinray purchase, which will increase Cardinal’s independent drug store base by 40% to some 7,000 customers, is slated to close by the end of the year or in early 2011.

Cardinal expects the all-cash purchase to have little impact on earnings in the fiscal year ending June 30, depending on the timing of the closing. The company expects a lift in profits in fiscal 2012 of at least 12 cents in non-GAAP earnings per share from continuing operations, including the impact of amortization of intangibles.

“Adding Kinray to the Cardinal Health pharmaceutical segment portfolio will enable us to build on our increasing presence in community pharmacy and accelerate our growth in this important channel,” states chairman and chief executive officer George Barrett.

“We are excited to have the Kinray employees join the Cardinal Health family, and we look forward to their contributions. Kinray has a long-standing service tradition with its customers. We intend to continue that tradition, utilizing its customer expertise and Whitestone [New York City] distribution facility, while creating additional value for its customers through branded pharmaceutical programs, inventory and pharmacy management tools, and Cardinal Health’s extensive generic drug program.”

With annual sales in excess of $3.5 billion, Kinray serves more than 2,000 independent pharmacy customers as a distributor of both branded and generic drugs. The company primarily serves the greater New York area and will establish a stronger platform for Cardinal Health in the northeastern United States.

“Joining forces with Cardinal Health supports Kinray’s mission to help retail independent pharmacies serve as an integral provider of care for our evolving health care system,” said Stewart Rahr, president and CEO at Kinray. “The combination of Kinray’s distribution model with the benefits of the value-added services offered by Cardinal Health will benefit our customers, making them even more efficient and successful in caring for their patients. It also provides our people with the opportunity to join one of the world’s premier health care companies, one that understands the value we bring to the retail independent pharmacies we serve.”

The completion of the purchase of privately held Yong Yu, also known as Zuellig Pharma China, extends Cardinal’s distribution and services presence into one of the world’s fastest-growing health care markets. The drug distribution market in China is expected to expand at a compound annual growth rate of 20% through 2014, after which time China is projected to be the world’s second-largest pharmaceutical market.

“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,” notes Barrett. “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 covers 31 of the 34 provincial-level administrative units in China through its direct-to-customer distribution center network and 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 about 49,000 hospitals and clinics and more than 123,000 pharmacies. The company also has a growing business distributing medical-surgical products.

“Yong Yu is a superb asset for Cardinal Health and has been operating in China for 17 years,” Barrett adds. “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. 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 comments.

Yong Yu will report organizationally to Cardinal chief financial officer Jeff Henderson. Financial results of the unit will be reported as part of the company’s pharmaceutical segment. Cardinal expects the transaction to be slightly accretive to non-GAAP earnings this fiscal year and more meaningfully accretive in fiscal 2012 and beyond.

Under the terms of the purchase, Cardinal assumed around $60 million in net debt. The remainder of the purchase price was funded with cash, a large portion of which was from Cardinal funds held overseas.