McKesson Corporation (MCK - Analyst Report) recently announced that it has received a notification of early termination of the waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, in relation with its proposed acquisition of PSS World Medical Inc. .
On October 25, 2012, McKesson had announced the signing of a definitive agreement with PSS World Medical Inc., whereby the former will acquire all outstanding shares of PSS World Medical for $29.00 per share in cash.
The termination of this waiting period brings McKesson a step closer to completing its acquisition of PSS World Medical.
Including PSS World Medical's debt of about $480 million and related transaction costs, the acquisition was valued at approximately $2.1 billion. Once the acquisition goes through, PSS World Medical will combine with McKesson’s Medical Surgical Distribution business.
McKesson’s Medical Surgical Distribution business provides medical-surgical supply distribution, equipment, logistics and other services to healthcare providers including physicians’ offices, surgery centers, extended care facilities, homecare and occupational health sites through a network of 28 distribution centerswithin the U.S.
The addition of PSS World Medical to the company’s product line will amalgamate distribution capabilities along with product and technology expertise of both the businesses, thereby bolstering the Medical Surgical Distribution business of McKesson, which accounted for a meagre 3% of total sales in 2011.
At the time of announcing the acquisition, McKesson had said that it expects to generate more than $100 million in annual savings (pre-tax) by the fourth year after the closure of the deal. On the second quarter 2013 conference call, the company stated that the deal is expected to add 15 to 25 cents per share to the company's bottom line after a year of closing.
We note that McKesson has been quite active on the acquisition front to boost its organic growth. Last month, the company inked a deal with Emendo Ltd. to acquire the latter. Emendo has developed CapPlan, which is utilized in more than 40 hospitals across New Zealand, Australia, Canada and the UK to optimize operational efficiency by forecasting patient demand and plan resourcing.
We currently have a Neutral recommendation on McKesson. Our recommendation is supported by a Zacks #3 Rank (Hold) in the short run.