What do distributing drugs and selling medical equipment to hospitals have in common? Apparently not enough. Yesterday, drug middleman Cardinal Health (NYSE: CAH ) completed its spinoff of CareFusion (NYSE: CFN ) by distributing to its shareholders 0.5 shares of CareFusion for each share held of Cardinal Health.
Cardinal is keeping an 18.5% stake in the company although it plans to divest itself of those shares within five years. With a market cap of $4.4 billion, CareFusion will become a member of the S&P 500.
When talks of the spinoff of the medical-products business began last year, it seemed the move would benefit shareholders by separating the faster-growing CareFusion segment from the stodgier Cardinal Health division, much the way McDonald's (NYSE: MCD ) spun off Chipotle Mexican Grill (NYSE: CMG ) .
But then hospitals tightened their budgets at the end of last year, causing Cardinal and medical-device companies such as Intuitive Surgical (Nasdaq: ISRG ) and Stryker to lower guidance.
As it turns out the short-term beneficiary might be Cardinal, as the spinoff will help raise cash, much like eBay (Nasdaq: EBAY ) is doing by selling a majority of Skype. Cardinal has already allocated that cash to retiring $1.2 billion of long-term debt.
While the slowdown has put a crimp in CareFusion's style, the long-term benefit from the spinout still looks promising. By comparison, Hospira is up about 45% since its 2004 spinoff, compared to a 22% increase return from parent Abbott Labs (NYSE: ABT ) .
Can CareFusion outpace its big brother and/or the S&P500? Let us know by rating the company in Motley Fool CAPS. So far Fools seem to like what they see, with bulls outpacing bears 9-to-1. Of course, there are only 10 raters so far, so you can see why your input is needed.
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