Cardinal Health targets hospital sales with $1.1B bid for Harvard Drug Group

The past few years have seen significant consolidation in the drug distribution industry, and drug and device distributor Cardinal Health ($CAH) is right in the middle of it. The Dublin, OH-based company is now laying out a chunk of change to buy The Harvard Drug Group, which specializes in sales of generics and over-the-counter products.

Cardinal Health said Friday that it will pay about $1.1 billion to buy the Livonia, MI-based distributor from Court Square Capital Partners, which picked it up in 2010. The deal is expected to be complete next year.

Cardinal said The Harvard Drug Group will give a boost to its own telesales capabilities, expand its OTC portfolio and provide it with some specialized packaging operations for hospital systems and other institutions. It is also projecting that the operation, which has about $450 million a year in sales, could provide it with earnings bump of $0.15 per share in fiscal 2016.

It is the second $1 billion-plus deal from Cardinal this year. In March it said it would pump up its device product line with a $1.9 billion deal to buy Johnson & Johnson's ($JNJ) Cordis vascular device unit. That deal is expected to close by the end of the year.

With pricing pressure growing across most segments of the industry, the drug distribution industry has been consolidating to give companies more leverage to get and give discounts. Cardinal competitor AmerisourceBergen ($ABC) struck a 10-year deal with Walgreens ($WAG) and its partner Alliance Boots in 2013 that has been steadily improving AmerisourceBergen's top and bottom lines.

The drug distributor started distributing branded drugs for the two chains last year and has since added their generic drug distribution this year. Walgreens and Alliance Boots also worked the deal so they will take a minority stake in AmerisourceBergen, starting with 7%. Walgreens paid $6.7 billion in 2012 for nearly half of Alliance Boots.

That move was seen as a motivator for McKesson ($MCK) to strengthen its international reach. It made an $8.3 billion offer in 2013 for control of German wholesaler Celesio. The deal initially fell short of a required 75% shareholder approval but it has since gained a 76% interest in Celesio, and the two said last year they got approval from a German court to operate as an integrated business.

In another consolidation move this year, AmerisourceBergen said in January that it would add distribution of veterinary drugs to its services with a $2.5 billion deal to buy MWI Veterinary Supply ($MWIV).

- here's the release