Drug distributor McKesson Corp. (MCK) has agreed to acquire Rexall Health from Canada-based Katz Group for C$3 billion, or $2.2 billion, the two companies said Wednesday. The deal is valued at about $1.9 billion, net of the present value of incremental cash tax benefits.
Katz Group is one of Canada's largest privately-owned enterprises, with operations in pharmacy, sports & entertainment and real estate development.
McKesson noted that the acquisition of Rexall Health will strengthen its position in Canada's pharmaceutical supply chain as well as enhance its retail pharmacy capabilities and procurement scale.
As part of the transaction, McKesson intends to acquire Rexall Health's business, including about 470 retail pharmacies. This will bring McKesson Canada's combined pool of talent to 13,000 employees.
McKesson said it will fund the acquisition by a mix of cash and debt. The transaction, subject to review under the Investment Canada Act and by the Competition Bureau of Canada, is expected to close late in calendar year 2016.
Further, the company noted that Rexall Health will help it leverage its existing portfolio of assets to drive growth along the entire value chain, particularly in two of Canada's fastest growing regions, Ontario and Western Canada.
Like McKesson Canada, the operations of Rexall Health will be part of McKesson's Distribution Solutions segment, reporting to Paul Julian, executive vice president and group president. Rexall Health will continue to be led by Jürgen Schreiber, while retaining its existing brand.
McKesson expects the acquisition to be modestly accretive to its adjusted earnings per diluted share for fiscal 2017, as earnings attributable to Rexall Health will be partially offset by an anticipated charge related to the reversal of a step-up to fair value of acquired inventory at the date of the acquisition.
The company expects the acquisition to drive meaningful accretion, on a constant currency basis, to its fiscal 2018 adjusted earnings per share.
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