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Elliott targets Cardinal Health board seats

Sarah Pringle
Aug 16, 2022
Illustration of a cardinal sitting on a branch with a word balloon with a question mark in it coming out of its mouth.
Illustration: Brendan Lynch/Axios

Elliott Management has amassed a large stake in Cardinal Health and aims to score a "handful of seats" in the board room, the Wall Street Journal reports.

Why it matters: The activist investor's endgame isn't yet clear, but signs point to its interest possibly being a precursor to M&A.

Between the lines: Cardinal has disparate medical supplies and pharma distribution businesses, and while the pharmaceutical segment profit is ticking higher, the medical arm is heading in the other direction. So will a breakup finally happen?

Yes, and: With inflation and supply chain constraints weighing on the medical segment's performance, Cardinal last week unveiled a "Medical Improvement Plan" — setting a new goal to achieve segment profit of $650 million by fiscal year 2025.

  • The medical segment incurred a $2.1 billion impairment charge in fiscal 2022, with revenue and profit dropping 5% and 63% year over year, respectively.
  • All this while pharmaceutical segment revenue and profit grew 14% and 5%, respectively, over the corresponding period.

Catch up quick: Dublin, Ohio-based Cardinal announced late last week that CFO Jason Hollar would take the helm as CEO after the unexpected departure of Mike Kaufmann.

  • Kaufmann joined Cardinal more than three decades ago and steered the company as CEO for most of the last five years.

Flashback: Cardinal about a year ago completed the $1 billion divestiture of Cordis — its cardiovascular medical device unit. The buyer was Hellman & Friedman in partnership with Ajax Health and Zeus Health.

  • Cardinal on Thursday cited the sale as another factor that pushed the medical segment's top line lower.

State of play: Increased competition could be another factor at play.

  • Fueled by its growing production of private label products, sources have said health care distribution giant Medline has quietly been taking share from other large vendors.
  • Last year Medline commanded $34 billion in its LBO by H&F, Carlyle and Blackstone, and that presumably positioned it for accelerated growth.
  • Sources suggested then that the deal could have implications, or eventually help to trigger some strategic moves by big public players like Cardinal, Owens & Minor or McKesson.

By the numbers: Shares of Cardinal Health have added more than 11% since news of its C-suite changes emerged, with gains added this week amid reports of Elliott's stake.

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