What do distributing drugs and selling medical equipment to hospitals have in common? Apparently not enough. Yesterday, drug middleman 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
But then hospitals tightened their budgets at the end of last year, causing Cardinal and medical-device companies such as Intuitive Surgical
As it turns out the short-term beneficiary might be Cardinal, as the spinoff will help raise cash, much like eBay
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
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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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Chipotle and Stryker. The Fool's disclosure policy wanted to spin off a document-writing service, but we couldn't live without it.