According to Modern Healthcare’s daily IT e-newsletter today, Cardinal Health announced it will, “spin off its clinical and medical products business into a separate, publicly traded company.”
In what looks like a tussle between Cardinal’s traditional supply chain services business and the young upstart CTS (clinical technologies and services) the two groups have decided to go their own way. With the retirement of Cardinal chair and CEO, Kerry Clark, the two vice chairs, George Barrett for supply chain services and David Schlotterbeck for CTS, are going separate ways. Barrett will take Clark’s position and Schlotterbeck will head the $4 billion global company to be headquartered in San Diego.
The new business’ offerings will include product lines in the areas of infusion care, medical and supply dispensing, respiratory care, infection prevention, diagnostics and surgical procedures.
The press reports the spin off is intended to deliver more stockholder value than the current company.
Analysts said the spinoff would allow a slimmed-down Cardinal Health to focus on turning around its underperforming drug distribution business, while potentially attracting a higher stock valuation for the publicly traded stand-alone med-tech company.
“The clinical technology side is really the crown jewel,” said Jeff Jonas, portfolio manager at Gabelli Health and Wellness Trust Mutual Fund, which owns Cardinal shares. “So that would presumably get a much higher multiple in the market as a stand-alone company.”
Apparently, declining revenue growth in the supply chain business is holding down the full valuation of CTS. The spinoff’s stock price should reflect the full value of the higher margin medical device business.
This seems a sweet deal for Schlotterbeck – he doesn’t have to live in Dublin, Ohio (a suburb of Columbus) and he can run his own company again. His last company was Alaris, formed out of the merger of pump vendors Ivac and Imed, and acquired (at a premium) by Cardinal. Schlotterbeck transformed Alaris from a second tier pump vendor into a market leader by leveraging connectivity and repositioning Alairis as a patient safety company. He’s one of the very few executives to have wrung substantial value out of a connectivity strategy.
Schlotterbeck seems well positioned for another connectivity strategy play with his current business unit. The workflow automation potential for infusion pumps, respirators, Pyxis and Care Fusion is most interesting. All they need to do is acquire a patient monitoring vendor…