Shares of Patterson Companies, Inc. PDCO) gained 1.3% to close at $49.27 on Jul 1, after the company declared that it has signed a definitive agreement to divest its medical business.
The company plans to sell its medical business (Patterson Medical) to a private equity firm Madison Dearborn Partners (MDP) for $715 million in cash. The transaction is expected to complete in the second quarter of fiscal 2016.
Earlier this year, Patterson said that is contemplating the divestiture of the segment. The company hired Bank of America Corp. to facilitate the prospective sale process.
The medical segment at Patterson is relatively smaller and underdeveloped than the other two divisions viz. Dental and Veterinary. In Aug 2013, Patterson had voiced its intention to divest certain non-core product lines in its medical segment, which was ultimately carried out in fiscal 2014.
In the last reported quarter, Patterson Medical’s sales declined 3.1% to $113.8 million. Although a favorable foreign exchange rate acted as a tailwind during the period, the company lost a considerable chunk of sales due to the early divesture of its non-core product lines.
Given the dwindling performance of Patterson Medical over the last few years and the prevailing indirect Medicare reimbursement pressure, management believes the divestment of the non-performing medical segment, once realized, will help the company focus instead on its core businesses – Patterson Dental & Patterson Veterinary.
Patterson plans to use the net proceeds from this divesture to fund the $1.1 billion acquisition of Animal Health International, announced earlier this month. The buyout is expected to double the size of Patterson’s current veterinary business. It will help the company gain a strong foothold in the animal health space, complementing its existing presence in the companion pet market.
Zacks Rank
Currently, Patterson has a Zacks Rank #3 (Hold). Other top-ranked medical stocks at the moment include AMN Healthcare Services AHS, Cancer Genetics CGIX and INC Research Holdings INCR. While AMN Healthcare and Cancer Genetics sport a Zacks Rank #1 (Strong Buy), INC Research holds a Zacks Rank #2 (Buy).
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