Some big changes are ahead for Cardinal Health (Dublin, Ohio) – including the spinning-off of its med-tech businesses – and the retirement of CEO Kerry Clark.

Cardinal Health has proposed a tax-free spin-off of its clinical and medical products (CMP) business as a separate public company that would be led by current vice chairman David Schlotterbeck. The spin-off is expected by mid-2009, the company said.

Clark said he would continue to lead the company through the spin-off and then will retire. George Barrett, who has served as CEO/vice chairman of Healthcare Supply Chain Services since joining Cardinal Health in January, will succeed him.

"We are choosing to do this for several reasons: First, our Healthcare Supply Chain Services business and our Clinical and Medical Products businesses are very different, especially when you consider the products, the customer channels, and the geographic footprints of each business. As a result, we believe this move will sharpen our strategic focus, especially since each business requires different strategies and skill sets as well as unique R&D, IT, and capital investments," Clark told investors yesterday during a company conference call. "Second, Clinical and Medical Products has matured and can stand on its own as a publically traded company. Through organic growth and strategic acquisitions this business has become a sizeable global enterprise with a strong management team. And third, we believe this approach will deliver the maximum value to our customers and shareholders over time through a more focused management that is closer to its customers."

Cardinal Health said in August that it was exploring the possibility of spinning off its CMP segment. Profit for the company was down 64% for the fourth quarter ended June 30, to $326.6 million, or 91 cents a share, from $902.2 million, or $2.33 a share, in the year-ago period. The company attributed the decline largely to a $680 million gain in 2007 from the sale of former pharmaceutical technologies segment to the Blackstone Group for $3.3 billion.

The CMP division, with just 6% of sales for the quarter, produced 43% of 4Q profit (Medical Device Daily, Aug. 11, 2007). The spin-off would return Cardinal to its original business of distributing pharmaceuticals and medical supplies, which accounts for 94% of revenue and 57% of profit, the company noted.

Earlier this month the company sold its MedSystems (Wheeling, Illinois) business to Linden (Chicago), a healthcare and life sciences private equity firm, which renamed the company Corpak MedSystems. At that time, Schlotterbeck said the business did not fit into "the core focus of our clinical and medical products businesses" (MDD, Sept. 3, 2008).

"Many of you have heard me say during my time at Cardinal that we have needed to work through some significant challenges and the fact that we are spinning off our med-tech businesses does not suddenly relieve us of the important task of upgrading the performance of our business," Barrett said during the conference call. "But I can say this: we are clear on what we have to do, we have the team to do it, and with today's announcement I believe it will be easier for us to drive our increasingly focused business centered around our customers, and around a clear purpose."

Robert Walter, founder of Cardinal Health, also said he would retire from the company's board by not standing for re-election when his term expires on Nov. 5, following the company's 2008 annual meeting of shareholders. He said he would continue to serve as an adviser to the company.

"I am fully supportive of our plans to spin off the clinical and medical products businesses and am confident that the two businesses will be well positioned as separate companies," Walter said. "With strong teams in place to lead these two organizations, my retirement from the board is the next logical step in my leadership transition at Cardinal Health."

The new med-tech company will have offerings for infusion, medication and supply dispensing, respiratory care, infection prevention, medical diagnostics and surgical procedures. Products will include the Alaris IV infusion and Pyxis dispensing systems, AVEA and LTV series ventilators, V. Mueller surgical instruments, and clinically differentiated offerings to reduce hospital-acquired infections through MedMined services and ChloraPrep preoperative skin preparation.

Fiscal 2009 pro forma revenue for these businesses as a stand-alone entity is expected to be more than $4 billion, according to Cardinal Health.

Schlotterbeck joined Cardinal Health in 2004 through the $2 billion acquisition of Alaris Medical Systems, where he was president/CEO. Dwight Winstead, currently group president of CMP, will be named COO, reporting to Schlotterbeck. The company said it has launched an external search for a CFO for the new company.

Cardinal Health says it will retain its surgical gloves, drapes and apparel, and fluid management businesses that are currently part of the CMP segment. Cardinal Health also will retain a group of other businesses including Pharmacy Services (outsourced hospital pharmacy management services) and Medicine Shoppe International, while the company conducts its in-depth review to evaluate their strategic fit.

Jeffrey Henderson will remain CFO of Cardinal Health, a position he has held since 2005, and will report to Barrett after the spin-off. In addition, Michael Lynch and Michael Kaufmann will be named to senior business leader positions within Cardinal Health.

Henderson said the businesses moving out of CMP account for roughly $800 million to $1 billion in revenues and is expected to be accretive to the new Cardinal Health post-spin on a marginal percentage basis.

"After the spin occurs, we expect to have two sizeable companies in operation. On a pro forma basis we expect to see Cardinal Health with FY09 revenues, adjusted for the spin off, of greater than $90 billion and SpinCo [new company] pro forma in FY09 revenues, adjusted for the spin off, of greater than $4 billion."

In other dealmaking activity:

• Memry (Bethel, Connecticut) reported the closing of its merger with SAES Getters (Milan, Italy), and Saes Devices, which was disclosed in August (MDD, Aug. 19, 2008). The purchase price was $78.4 million in cash, resulting in a consideration of $2.53 a share of Memry common stock.

Memry said its CEO, Robert Belcher, has retired and Dean Tulumaris, who has served as president/COO of Memry since May 2006, has been named the new CEO.

Memry provides design support, engineering, development, and manufacturing services to the medical device and other industries using its technologies. Its major products include stent components, catheter components, laparoscopic sub-assemblies and complex multi-lumen, multi-layer extrusions used for guidewires, catheter shafts and other delivery systems.

• bioMETRX (Jericho, New York) said it has executed a non-binding letter of intent with engineering firm Biometric Solutions (New York) to acquire a controlling interest in Biometric Solutions. The terms of the deal have not been finalized, the company noted.

bioMETRX designs practical, secure, everyday consumer biometric products for the garage door, door hardware, HVAC, home security, PC, automotive and portable lock markets. The company's subsidiary, smartTouch Medical, makes a portable medical records device, called smartStick-MD, designed to allow patients to securely store and share physician-generated medical records with other health professionals.

• Emdeon (Nashville, Tennessee), a provider of revenue and payment cycle management solutions for the healthcare industry, said it has acquired GE Healthcare Information Technology's patient statement business, a bulk printing and mailing services provider. Terms of the deal were not disclosed.

The acquired business serves more than 400 hospitals and physician groups, providing delivery of correspondence such as statements, invoices, claims and appointment reminders for patients.

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