Cardinal buys Zuellig Pharma China with $470m

NEW YORK - US drug wholesaler Cardinal Health Inc has bought a Chinese distributor in a $470 million deal, establishing a foothold in a booming pharmaceutical market.

Cardinal announced the completion of the transaction on Monday for privately held Zuellig Pharma China, known locally as Yong Yu. Cardinal assumed about $60 million in net debt under terms of the deal and funded the remainder with cash.

Shares of Cardinal were down 2 percent to $35.08 in afternoon trading on the New York Stock Exchange on a down day for the market.

"Cardinal has done quite a few deals lately and the market is apprehending that maybe their appetite is bigger than their capability," Sanford Bernstein analyst Helene Wolk said.

Cardinal earlier this month said it planned to buy Kinray Inc for $1.3 billion to diversify its customer base, while in June announced it would buy Healthcare Solutions Holding LLC for more than $500 million to expand in the fast-growing area of specialty medicines.

While the deal was viewed by analysts as a positive over the long term, they were less confident about the more immediate impact of the transaction given the completely different nature of the Chinese market and regulatory issues.

Susquehanna Financial Group analyst A.J. Rice said in a research note that while Yong Yu gets the majority of its sales from branded drugs, about two-thirds of the Chinese market is dominated by generics.

"As more drugs go generic, it is a long-term headwind for Cardinal's China business," Rice said.

The analyst also noted that the acquisition marked the first move by one of the big three US drug wholesalers, which also include McKesson Corp and AmerisourceBergen Corp, outside of North America.

On a conference call with analysts, Cardinal said Yong Yu's operating margin compares "very favorably" with the typically low-margin US drug distribution market.

Dublin, Ohio-based Cardinal expects the transaction to slightly add to earnings in its fiscal 2011 year.