Medtronic plc. Ordinary Shares (NYSE:MDT) has completed the selloff of its Patient Care, Deep, Vein Thrombosis and Nutritional Insufficiency business to Cardinal Health Inc.(NYSE:CAH). The transaction worth $6.1 billion comes just days after Chief Financial Officer, Gary Ellis, warned that a computer outage last month could significantly hurt Q1 2018 revenue.
Medtronic Divestiture
The company has also warned that it expects modest dilution of about $0.18 a share on 2018 earnings because of the spin off. The selloff is part of an ongoing restructuring that the company is pursuing as it continues to trim its operations.
Medtronic expects the divesture to add 50 basis points on its constant current sales growth as well as adjusted operating margin. The company plans to use $1 billion of the proceeds from the transaction to repurchase shares during 2018.
“This is a positive transaction for all involved – Medtronic, Cardinal Health, and our respective shareholders and employees – who we believe will all thrive under this change in ownership. In addition, it signifies our commitment to disciplined portfolio management,” said Omar Ishrak Medtronic CEO.
The business that Medtronic has sold to Cardinal Health generated sales of $2.4 billion over the last 4 quarters. Some of the product line that will be affected with the selloff include dental/animal, chart paper, would care and thermometry. The deal will also have an impact on 17 manufacturing plants.
Revenue Miss Concern
Shares of Medtronic have been on an impressive run having risen by 21% since the start of the year. However, the stock registered its biggest one day loss since November last week after the CFOP warned they might struggle to meet quarterly sales.
A computer crash in the quarter affected global ordering, fulfillment and manufacturing, an issue that the company is still recovering from. The delays are expected to push sales into the next quarter something that could plunge revenue growth to the lower end of the 4%-5% growth guidance.
However, the company expects its Q1 earnings to be in the upper end of a single digit range thanks to tax benefit accrued in the quarter. Medtronic will report its Q1 results on August 22, 2017.
