Cardinal Health’s Buyback Offer

Cardinal Health, Inc. (CAH - Analyst Report) has offered to buy back $1.2 billion of its long-term debt securities (notes) as part of its plan to reduce long-term debt after spinning off its CareFusion Corporation division on Aug 31, 2009. These securities carry maturity dates from 2011 to 2026. The offer expires on Sept. 24 and the owners of these securities must tender their notes by Sept 10 to receive the early tender premium.

The notes were issued by Cardinal Health and its subsidiary, Allegiance Corp., Cardinal will finance the buyback with a combination of both cash in hand and a $1.4 billion it is expecting to generate from the CareFusion spin-off. The amount remaining after financing the tender offer will be used for retiring notes due in Oct 2009.

We view the buyback as a good use of the company’s cash balance. Cardinal’s cash balance stood at roughly $1.8 billion at the end of fiscal 2009. The company’s long and short-term debt was approximately $3.3 billion and $0.4 billion, respectively. Assuming that the company does not take on any long-term debt during this interim period, the $1.2 billion of buy-back will reduce the company’s long-term debt by roughly 36%. 

Cardinal Health is one of the largest global healthcare companies that helps pharmacies, hospitals and ambulatory care sites to focus on low-cost patient care. The company is also a leading manufacturer of medical and surgical products.

Cardinal Health recently released its fourth quarter and full fiscal year 2009 results. For the quarter, earnings per share were 86 cents, compared to 96 cents in the year-ago quarter but in line with the Zacks Consensus Estimate. For the year, earnings per share were $3.48, lower than last year’s earnings per share of $3.75 and the Zacks Consensus Estimate of $3.50.

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