Upon closing, the transaction is expected to result in an immediate positive impact to Medtronic's comparable, constant currency revenue growth rate and non-GAAP comparable, constant currency operating margin of approximately 50 basis points each.
Under the terms of the definitive agreement, Medtronic will receive $6.1 billion in cash, subject to certain adjustments, with total after-tax proceeds estimated to be approximately $5.5 billion. Medtronic intends to allocate $1 billion of the after-tax proceeds for incremental share repurchases in FY18, with the balance used to reduce its debt. This deployment of proceeds is consistent with Medtronic's near-term capital allocation strategy, improves the company's debt leverage ratio, and enables future investments in higher growth and higher margin opportunities. The company remains committed to a capital allocation policy that balances returns to its shareholders with reinvestment in its businesses.
"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 chairman and chief executive officer. "Medtronic has had a specific focus over the past several years on ensuring that we are delivering compelling clinical and economic value to health systems and patients around the world. Ultimately, we came to the conclusion that these products—while truly meaningful to patients in need—are best suited under ownership that can provide the investment and focus that these businesses require. At the same time, we can put these proceeds to work, investing over the long-term in higher returning internal and external opportunities that are more directly aligned with our growth strategies of therapy innovation, globalization, and economic value."
The transaction is expected to result in modest dilution on a net basis to the company's fiscal year 2018 non-GAAP earnings per share in the range of approximately $0.12 to $0.18, with the exact amount primarily dependent on the closing date of the transaction.
Combined, the businesses expected to be divested in the transaction generated approximately $2.4 billion in revenue over the last four reported quarters. Among the product lines included in the transaction are the company's dental/animal health, chart paper, wound care, incontinence, electrodes, SharpSafety, thermometry, perinatal protection, blood collection, compression, and enteral feeding offerings. The transaction also will include 17 dedicated manufacturing facilities. Medtronic will retain its Respiratory & Monitoring Solutions business, which includes its airway, ventilators, monitors, sensors, and health informatics product lines, as well as its Renal Care Solutions business, both of which are within its PMR division.
"This transaction enables our group to better focus on a portfolio that delivers on our global strategic priorities," said Bryan Hanson, executive vice president and president of Medtronic's Minimally Invasive Therapies Group. "We believe both our employees and these businesses will thrive under Cardinal Health's ownership. We sincerely appreciate the countless contributions of our team throughout the years, as well as the partnership and loyalty of our customers and patients."
Medtronic's financial advisors on the transaction are Piper Jaffray and J.P. Morgan Securities LLC. Its legal advisors on the transaction are Wachtell, Lipton, Rosen & Katz and Baker McKenzie.