The drug wholesaler said Monday that it's going to spin off its clinical and medical products businesses -- infusion pumps, ventilators, surgical instruments, and the like. The spinoff is expected to be complete by the middle of next year.
The move could benefit shareholders a little. Cardinal's medical products business has been the shining part of the company, and the spinoff could garner an earnings multiple closer to competitors like Baxter
Further, I can't see how the split is going to help Cardinal compete with McKesson
In order to grow the business, Cardinal is going to have to increase the volume of drugs it distributes. It's a numbers game in this low-margin business, after all. It's also going to need to take advantage of all the up-and-coming generic drugs. Those factors seem to have little to do with whether it has a separate division selling medical equipment.
Breaking up companies often provides some wacky valuations that ultimately prove beneficial for shareholders, but smart investors buy shares only if they're interested in ultimately owning both companies. Personally, I'll be sitting out until after the breakup or until I have more confidence that Cardinal's management can grow its drug distribution business.
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