In this segment from the MarketFoolery podcast, host Chris Hill is joined once again by Million Dollar Portfolio's Jason Moser and Stock Advisor Canada's Taylor Muckerman as they consider a restructuring move by Henry Schein (HSIC 1.33%), the world's biggest dental equipment and supplies distributor.
It's getting out of the animal health software business with a spinoff/sale maneuver that will conclude with buyer Vets First Choice, now a private company, trading on the public markets as Vets First Corp. Then, they dig into the history of the companies, give an overview of the segment, and discuss who wins with this deal.
A full transcript follows the video.
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This video was recorded on April 23, 2018.
Chris Hill: Interesting move in, broadly, the health and welfare businesses. Henry Schein is spinning off its animal health business, and it's going to merge with Vets First Choice, which is a provider of services to veterinary practices. And the new combination is going to be an independent publicly traded company called Vets First Corp. Jason, I thought of you immediately when I saw this story.
Jason Moser: [laughs] Because my house is overrun with animals?
Hill: I'm not going to say that.
Moser: It is.
Hill: But, we've talked before about this industry, the pet care industry, and I know it's one that you're watching increasingly. And it seems like kind of a win-win here. It seems like this is a good move for Henry Schein, which is basically in the dental --
Moser: It's dental equipment, yeah.
Hill: Dental equipment. So, they focus their business, get back to their core competency. But, it also seems like this new combined entity could do well on its own.
Moser: I think it could. The companion animal and equine market is such an attractive opportunity for so many reasons. We talk about it all the time. People will do anything for their pets. I mean, I can speak to that from experience. It's a business that's not fraught with a bunch of red tape and insurance, typically a cash business. And the dynamics, the pet ownership statistics, just tell us that more and more people are getting pets as time goes on.
So, for me, I think you made a good observation. I think probably, from Schein's perspective, it gives them an opportunity to monetize what's been a pretty good business to this point at a good price, but maybe now it's a little bit out of their wheelhouse when you look at other companies out there like Vets First Choice and Idexx Laboratories and others that we've spoken about. To give a little context on the animal health unit, they brought in about $3.5 billion in sales in 2017 for Henry Schein, so it's a meaningful business.
For me, the story behind all of this is almost as attractive as the actual public company that's going to come from this, because Vets First Choice was founded in 2010 by Ben Shaw. Ben Shaw is the son of David Shaw. Now, who's David Shaw, you ask? Well, Chris, I'm going to tell you. David Shaw is the guy who happened to be the founder of Idexx Laboratories. So, there is a neat story here just in the connection of people behind this deal and their history in this market.
It means that they're going to have some pretty wicked competition there in the form of Idexx Laboratories. Mars, obviously, as we know, owns a big presence in the space now. MWI Veterinary Supply, which was acquired a few years back, and I forget the name of the private entity that bought it out, but MWI was a distributor that I liked a lot. They're going to all be competing on the same playing field now. I think this opens up an opportunity, though, in a very attractive market opportunity, if it turns out to be a well-run business, and there are indicators that tell us it could be, given the experience of leadership.
Hill: For a second there, I thought you were going to there was a relationship to Charles Shaw, which is the wine at Trader Joe's. Two Buck Chuck.
Moser: Ah. Well, you're speaking a little bit beyond my scope of jurisdiction here, Chris. I'm a beer guy, remember.