Cardinal Health Pulls Back From China

By Joanne Chiu Features Dow Jones Newswires

Cardinal Health Inc. has agreed to sell its Chinese pharmaceutical and medical-products distribution business to a local rival, in the latest pullback by a U.S. company in the world's second-largest economy.

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In a statement, Hong Kong-listed Shanghai Pharmaceuticals Holding Co. said Wednesday it would acquire Cardinal Health China for $557 million after the exclusion of debt and other accounting adjustments. It put the "base payment" figure at $1.2 billion, the same price tag Cardinal Health attached to the deal in a separate release.

The Dublin, Ohio-based company said it would hold on to its remaining operations in China, such as its heart-product division Cordis and its recently acquired patient-recovery business.

Cardinal Health has been a distributor in China for seven years and "we recognize that significant scale is required to be a market leader" there, Chief Executive George Barrett said in a statement.

The company has taken a hit from a drop in generic-drug prices this year. Earlier this month, Cardinal Health said Mr. Barrett would step down from the post in January. Chief Financial Officer Mike Kaufmann is set to succeed him.

The Shanghai-based unit distributes branded and generic drugs and operates direct-to-patient specialty pharmacies. The business has about 2,300 employees and serves more than 10,000 customers, Cardinal Health has said.

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Shanghai Pharma said the deal was part of an effort to expand its distribution network and build up its pharmacy operations. Cardinal Health China operates 14 direct-sales companies and 17 distribution and operation centers with a total storage area of around 146,000 square meters and around 7,000 square meters cold-storage capacity, the Chinese company said.

The acquisition will "facilitate the growth of our pharmaceutical manufacturing business, enabling us to play a significant role in the government's 'Healthy China' initiative," Shanghai Pharma Chairman Zhou Jun said in a statement. The companies said they intend to continue working together and will look for other opportunities in the U.S. and China.

The deal comes as Chinese regulators look to tighten oversight of the country's fast-growing pharmaceutical industry. In February, Beijing unveiled plans to overhaul the sector, including asking state agencies to encourage consolidation of drug manufacturers and distributors, according to an article published by corporate law firm Sidley Austin LLP. Five months later, Cardinal Health said it was exploring strategic alternatives for the Chinese distribution business.

In April, the company agreed to acquire Medtronic PLC's medical-supplies business for $6.1 billion to bolster its portfolio of medical products. Analysts have said proceeds from a sale of Cardinal Health's Chinese unit could be used to pay down some debt from the Medtronic 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.

Joseph Walker, Allison Prang and Anne Steele contributed to this article.

Write to Joanne Chiu at joanne.chiu@wsj.com

(END) Dow Jones Newswires

November 15, 2017 02:44 ET (07:44 GMT)