Cardinal Health sells troubled Cordis unit to PE firm for $1B

Medical supplies and drugs distributor Cardinal Health on Friday announced it has signed a definitive agreement to sell its Cordis business to private equity firm Hellman & Friedman for approximately $1 billion.

Cardinal in 2015 bought the cardiovascular device manufacturer from Johnson & Johnson for $1.9 billion, but was dogged in subsequent years by integration problems. Friday’s announced deal with Hellman & Friedman is expected to close in the first half of Cardinal’s fiscal year 2022, which will span late 2021 to early 2022.

The divestiture will decrease Cardinal’s medical segment profit by about $60 million to $70 million on an annual basis, according to the Dublin, Ohio-based medical device and drug distribution giant. While most assets and liabilities associated with the Cordis business will transfer to H&F, Cardinal will retain full liability and authority for lawsuits related to inferior vena cava filters in the U.S. and Canada.

Cordis, which makes medical devices for diagnostics and interventional procedures to treat patients with coronary and peripheral vascular diseases, is an approximately $750 million revenue business.

But it’s produced its share of headaches for Cardinal.

In July, Cardinal was named as a defendant in 334 product liability lawsuits coordinated in Alameda County Superior Court in California involving claims by approximately 4,280 plaintiffs that allege personal injuries associated with the use of Cordis OptEase and TrapEase inferior vena cava filter products. Another 31 lawsuits involving similar claims by approximately 36 plaintiffs are pending in other jurisdictions.

Cardinal CEO Mike Kaufmann said in a statement the decision to divest Cordis was based on efforts to focus resources on strategic growth areas “where we are an advantaged owner.”

The exec also said Cardinal remains committed to its medical distribution and global medical products businesses, with a product portfolio generally more oriented around the operating and recovery rooms, including compression, enteral feeding, and wound care gauze dressings.

Cardinal’s customers for its medical product and supply chain services include hospitals, laboratories, physician offices, surgery centers, as well as patients in the home. The company reported last month that second-quarter revenue for its medical segment increased 7% to $4.3 billion, driven by a net positive impact from COVID-19.

Cardinal expects the Cordis divestiture to result in a pre-tax loss of up to $120 million in the third quarter of its fiscal year 2021. Additional costs of up to $125 million are anticipated to be incurred primarily in fiscal years 2021 and 2022.

Stephen Mason in 2019 replaced Jon Giacomin as CEO of Cardinal Health’s medical segment and was tasked with addressing the operational and supply chain issues created by the acquisition of Cordis from J&J.

Cordis manufacturing sites in Miami Lakes, Florida, Santa Clara, California, and Juarez, Mexico, will transition to H&F, whose partners in the deal include investment firm Ajax Health and startup Zeus Health.

KKR teamed with Duke Rohlen in late 2020 to launch Zeus Health, a $100 million platform that invests in medical device companies. Medtech Dive