McKesson, Change Healthcare join forces to form new company
- McKesson announced on Tuesday it will combine a majority of McKesson Technology Solutions and revenue cycle management outfit Change Healthcare to form a new, separate company.
- McKesson and Change Healthcare will own approximately 70% and 30%, respectively, of the new company and will receive cash proceeds of approximately $1.25 billion and $1.75 billion, respectively, following the close of the transaction.
- The new company would have $3.4 billion in pro forma combined total annual revenues for the fiscal year ended March 31.
It's been quite the year for McKesson thus far. In March, the company announced it would cut about 1,600 employees, about 4% of its U.S. workforce. Earlier this month, rumors swirled about whether or not McKesson was looking into a deal for its IT unit so it could better focus on its drug-distribution business.
McKesson's IT business, called Technology Solutions, is a significant player in the healthcare industry, providing software, services and consulting to providers. It recorded $2.9 billion in sales in its last fiscal year and an operating profit of $519 million.
However, as the Wall Street Journal noted at the times of the rumor, the IT business is small change compared to McKesson’s drug-distribution business which saw $188 billion in sales in the last fiscal year and an operating profit of $3.6 billion.
The prepared statement of the new jointly-governed venture uses vague, buzzy language for its focus. "The new organization brings together the complementary strengths of MTS and Change Healthcare to deliver a broad portfolio of solutions that will help lower healthcare costs, improve patient access and outcomes, and make it simpler for payers, providers, and consumers to manage the transition to value-based care," the statement noted, adding, "As a separate entity singularly focused on healthcare technology and technology-enabled services, the new organization will be positioned to better respond to customer needs and deliver next-generation innovations."
They added the new company is expected to generate upwards of $150 million by the second year following the close of the transaction.
The agreement also provides the companies will take steps to launch an initial public offering in the months following the close of the transaction, subject to market conditions. Thereafter, "McKesson expects to exit its investment in the new company in a tax-efficient manner."
As Modern Healthcare noted, McKesson is still looking into selling its enterprise information business.
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