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Cardinal Health and Allegiance Agree to $5.4 Billion Merger
$21 Billion Company to be Nation's Leading Provider Of Healthcare Products and ServicesDUBLIN, Ohio, and MCGAW PARK, Ill., Oct. 9 /PRNewswire/ -- In a major move to broaden their reach in healthcare, Cardinal Health, Inc., a leading U.S. pharmaceutical service company, and Allegiance Corporation, the nation's leading provider of healthcare products and cost-management services, announced today that they have agreed to merge in a transaction valued at approximately $5.4 billion, which includes the assumption of approximately $890 million in long-term debt. The merger combines two progressive healthcare firms with similar strategies to create a $21 billion healthcare products and services company serving hospitals, health systems, retail drug stores, surgery centers and other healthcare providers.
Terms of the transaction call for Allegiance shareholders to receive a fixed exchange of 0.415 Cardinal common shares for each share of Allegiance common stock owned, with Cardinal issuing approximately 49 million fully diluted shares. The combination has been structured as a tax-free transaction, and will be accounted for as a pooling of interests.
"We are very pleased to have reached this agreement with Allegiance, which combines Cardinal's leading pharmaceutical services capabilities with the nation's premier manufacturer and distributor of medical, surgical, and laboratory products," stated Robert D. Walter, chairman and chief executive officer of Cardinal Health. "Cardinal and Allegiance have pursued very similar strategies for sustained, consistent earnings growth, deploying our strong distribution service platforms for selling a broad range of products and services that create real value for our customers. As a result, our companies have achieved unique, but similar, positions in our respective businesses. We expect this combination to create a healthcare company that can offer our customers an unparalleled array of products and services, each of which enjoys a leadership position."
"We are creating the industry's leading provider of healthcare products and services," said Lester B. Knight, chairman and chief executive officer of Allegiance. "Merging with Cardinal opens many new opportunities for us to serve the healthcare community. Together, we bring powerful new resources to healthcare professionals who are under unprecedented pressure to improve patient care and reduce costs. Together, we will be positioned to favorably impact the broadest range of healthcare costs in the industry."
"Allegiance has a very strong presence and reputation in the hospital market, where Cardinal also derives a significant portion of its operating earnings," Mr. Walter commented. "Allegiance has consistently demonstrated its ability to market a broad range of products and services through its top notch sales and service teams, which total 1,500 people today. Including the sales and service organization of Cardinal's operating divisions, the combined company will have more than 2,500 sales, service and support representatives addressing the needs of this marketplace. We are extremely enthusiastic about the opportunity to sell a broader range of market leading services in combination with Allegiance's strong sales and marketing platform."
"This is a story about growth," Mr. Knight added. "With Cardinal, we have a powerful partner who shares our strategic vision of integrating manufacturing, distribution, and services to bring greater quality and efficiency to patient care. We're gaining a partner who believes in what we've been working to achieve, can benefit from our proven approach to developing customer relationships, and has the financial strength to support our continued expansion both through acquisition and internal growth.
"We see an immediate opportunity to expand our leadership in serving hospital-based healthcare customers to other segments of the industry where Cardinal already has a significant presence," continued Mr. Knight. "The alternate site segment, for example, is a $3 billion business for Cardinal and among its fastest growing areas."
"This transaction is expected to be non-dilutive to Cardinal shareholders," Mr. Walter emphasized. "We believe Allegiance's earnings growth rate will be in excess of 30% in 1998, and that the company will achieve growth rates of 20% or more going forward. In addition, we expect this combination to generate substantial revenue enhancement opportunities and cost savings which we believe will exceed $50 million within two years following completion of the merger."
"This combination will create very positive results for our customers, shareholders and employees," Mr. Knight added. "Allegiance will expand the range of solutions we can offer healthcare providers to help them meet the difficult challenges of providing quality patient care in today's cost-focused environment. As part of Cardinal, we plan to continue to build upon the strong performance for shareholders that we have established as a public company. Our employees will benefit from the expanded career opportunities that this new, larger company can provide."
Following completion of the merger, Robert D. Walter and John C. Kane will remain in their current capacities as chairman and chief executive officer and president and chief operating officer of Cardinal Health, respectively. Lester B. Knight, currently chairman and chief executive officer of Allegiance, will serve as vice chairman of the combined company. Joseph F. Damico will serve as executive vice president of Cardinal Health as well as group president responsible for Allegiance. Cardinal's board of directors will be expanded to include Mr. Knight and two additional members of Allegiance's current board of directors.
The combined company will continue to be called Cardinal Health, Inc. and its corporate headquarters will remain in Dublin, Ohio. Allegiance will operate as a wholly owned subsidiary of Cardinal Health, retaining its management team, its name, and its headquarters in McGaw Park, Illinois.
The merger, which is subject to approval by Allegiance and Cardinal shareholders and regulatory clearances, is expected to be completed in the first half of calendar 1999. In connection with this transaction, Allegiance has granted Cardinal an option to purchase up to 19.9% of Allegiance's outstanding common shares, exercisable upon the occurrence of certain circumstances specified in the agreement.
Allegiance's board of directors has rescinded two previously authorized 6-million-share repurchase programs which were announced in November 1997 and July 1998. Allegiance had repurchased approximately 5.8 million of the 12 million shares authorized.
Through its operating subsidiaries, Allegiance Corporation is America's leading provider of healthcare products and cost-management services needed by hospitals, laboratories, and others in healthcare. The company manufactures many of the products it markets, while others come from leading health and medical companies around the world. Allegiance also provides a range of integrated services such as clinical and productivity consulting, procedure-based supply packaging, just-in-time delivery, and other services to help medical professionals control costs and improve quality in patient care. Additional information about Allegiance is available on the Internet at http://www.allegiance.net.
Cardinal Health, Inc., a Fortune 200 company based in Dublin, Ohio, is one of the country's leading healthcare service companies. Cardinal provides innovative, cost-effective pharmaceutical services that improve the medication use process to a broad base of customers nationwide. These services include pharmaceutical distribution (Cardinal Distribution and National Specialty Services, Inc.), hospital pharmacy management (Owen Healthcare, Inc.), automated dispensing systems manufacturing (Pyxis Corporation), drug delivery systems development (R.P. Scherer Corporation), pharmaceutical packaging and repackaging (PCI Services, Inc. and National PharmPak Services, Inc.), retail pharmacy franchising (Medicine Shoppe International, Inc.), and healthcare information systems development (Cardinal Information Corporation). The common stock of Cardinal Health, Inc. is a component of the Standard & Poor's 500 Index.
Except for historical information, all other information provided in this press release consists of "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected, anticipated, or implied. The most significant of such uncertainties are described in Cardinal's Form 8-K, Form 10-K, and Form 10-Q Reports and exhibits to those Reports, and in Allegiance's forms and exhibits filed with the Securities and Exchange Commission. These include (but are not limited to) the costs and difficulties related to the integration of acquired businesses, the loss of one or more key customer or supplier relationships, and changes in the distribution outsourcing pattern for healthcare products and services. FACT SHEET -- CARDINAL HEALTH, INC. AND ALLEGIANCE CORPORATION CARDINAL HEALTH, INC. Headquarters: Dublin, Ohio Trading Symbol: NYSE: CAH Year Founded: 1971 Became Public: 1983 Business: A leading healthcare service company providing a comprehensive array of pharmaceutical distribution, information and marketing services to healthcare customers and suppliers. Facilities: 29 U.S. Distribution Facilities & 30 Manufacturing Facilities Worldwide Employees: 15,000 Fiscal Year-End: June 30 Senior Executives: Robert D. Walter, Chairman and Chief Executive Officer John C. Kane, President and Chief Operating Officer Financial Highlights: (For Fiscal Year Ended 6/30/98) Revenue $16.5 billion Gross Margin $1.3 billion, 9.3% of Operating Revenue S, G, & A Expenses $675.4 million, 5.0% of Operating Revenue Operating Income $583.5 million, 4.3% of Operating Revenue Net Income $342.3 million, 2.5% of Operating Revenue Fully Diluted EPS $2.53 Cash & Equivalents $338.3 million Total Assets $4.8 billion Long-Term Debt $441.2 million Shareholders' Equity $2.0 billion Net Debt/Total Capital 6.3% Average Diluted Shares Outstanding 135.4 million Return on Committed Capital 27.5% Return on Average Shareholders' Equity 18.3% Avg. Ann. Tot. Ret. to Shrhldrs. (as of 9/30/98) 1-Year: 45.6%; 5-Year: 39.6% Market Capitalization (as of 9/30/98) $14.0 billion ALLEGIANCE CORPORATION Headquarters: McGaw Park, Illinois Trading Symbol: NYSE: AEH Year Founded: 1922 (as American Hospital Supply) Became Public: 1996 (spin off from Baxter International Inc.) Business: The leading provider of healthcare products and cost-management services to hospitals, laboratories, and others in healthcare. Facilities: 48 U.S. Distribution Facilities & 24 Manufacturing Facilities Worldwide Employees: 22,000 Fiscal Year-End: December 31 Senior Executives: Lester B. Knight, Chairman and Chief Executive Officer Joseph F. Damico, President and Chief Operating Officer Financial Highlights: (For Twelve Months Ended 6/30/98) Revenue $4.4 billion Gross Margin $956.2 million, 21.5% of Revenue S, G, & A Expenses $682.7 million, 15.4% of Revenue Operating Income $241.3 million, 5.4% of Revenue Net Income $106.9 million, 2.4% of Revenue Fully Diluted EPS $0.90 Cash & Equivalents $35.0 million Total Assets $2.7 billion Long-Term Debt $888.8 million Shareholders' Equity $930.8 million Net Debt/Total Capital 47.8% Average Diluted Shares Outstanding 118.4 million Return on Committed Capital 21.0% Return on Average Shareholders' Equity 17.4% Avg. Ann. Tot. Ret. to Shrhldrs. (as of 9/30/98) 1-Year: 93.7%; 2-Year: 84.0% Market Capitalization (as of 9/30/98) $3.5 billion Note: Results for Cardinal Health exclude special charges. Revenue for Cardinal Health includes bulk deliveries to customer warehouses. Allegiance EPS and shares outstanding adjusted to reflect two-for-one stock split issued 8/25/98. Figures in this release do not reflect Cardinal Health's pending three-for-two stock split payable 10/30/98.
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