McKesson (NYSE: MCK) is the largest drug distributing company in the United States. In order to expand its medical supply distribution services, it has just agreed to buy out PSS World Medical (NASDAQ: PSSI) in a transaction valued at $2.1 billion. McKesson is based out of San Francisco, California, while PSS World Medical is located in Jacksonville, Florida. McKesson has signed the deal to purchase PSS World Medical at $29.00 per share and will also be assuming all the debt incurred by the latter company. As compared to the share prices at closing, McKesson will be paying a 34% premium over the current price of PSS shares.
By acquiring PSS World’s distribution network, which involves the distribution of medical products and services to long-term care homes and physician offices, McKesson will be gaining its $2.1 billion annual sales revenue. As per the analysts at McKesson, the company will be gaining a cost savings of over $100 million per year within a span of 4 years.
Inclusion of Debt
Not only will PSS World be paid about 11 times the earnings made before depreciation, taxes, interest charges and amortization, but McKesson has also agreed to assume the $480 million in debt that PSS has incurred. This is not the first time McKesson is making a deal of this sort. In 2010, the company acquired U.S. Oncology for around $2.2 billion and also assumed the debt of the company. While the U.S. Oncology deal increased the range of clinical tools available to doctors through McKesson, the PSS World Medical deal will expand its business in a different way. As per CEO John Hammergren of McKesson, “The unified organization will bring extensive distribution capabilities, deep product and technology expertise and a broad portfolio of business services to an expanding industry.”
About PSS World Medical
PSS World Medical is a well-known marketer and distributor of medical products and services to front-line caregivers and long-term care homes in all of the United States. The company has more than 4,000 active members who work toward offering customer service to medical practitioners, hospices and more.
PSS World Medical is a mid-cap company that is currently one of the most actively traded companies on the NASDAQ fueled by today’s announcement of the purchase by McKesson. As of October 25, 2012, the share prices for the company have reached $28.57 per share, which is a monumental 32.3% higher. This works up to about a $6.97 increase per share. The market capitalization of the company is $1.4 billion.
Another mid-cap company that is trading heavily is Cadence Design Systems (NASDAQ: CDNS), which is trading at $12.73 per share and has seen an increase today of $0.02 per share or 0.2%. Cadence Design Systems is an electronic design automation (EDA) software company.
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