DBRS Comments on McKesson’s Acquisitions of Vantage Oncology and Biologics

DBRS Limited (DBRS) today notes that McKesson Corporation (McKesson or the Company; rated BBB (high) with a Stable trend) entered definitive agreements to purchase Vantage Oncology, LLC (Vantage), a national provider of radiation oncology, medical oncology and integrated cancer care, and Biologics, Inc. (Biologics), an oncology pharmacy services company. The total value of the transactions is $1.2 billion including any assumed debt. The acquisitions are expected to close the first quarter of McKesson’s fiscal year, subject to necessary regulatory approvals. DBRS acknowledges McKesson’s acquisitive nature but believes that the small relative size of the transactions and any resulting impact on credit metrics will not have a material impact on the Company’s BBB (high) rating.

Vantage will enhance McKesson’s scale in radiation oncology management services with more than 50 cancer centres across 13 states. Through its joint ventures with physicians and hospitals, Vantage’s comprehensive oncology management services will complement McKesson’s (and the U.S. Oncology Network) existing offerings.

Biologics will further McKesson’s oncology expertise and increase scale of its distribution of specialty pharmaceuticals.

DBRS expects the purchase price to be funded using a combination of cash-on-hand and incremental debt. DBRS notes that McKesson possesses a substantial cash balance and believes that even with the use of incremental debt to fund a significant portion of the purchase price, the Company’s leverage would remain acceptable for the current BBB (high) rating (i.e., lease-adjusted gross debt-to-EBITDAR below 2.50 times). McKesson’s ratings continue to be supported by its strong market position, diversified customer base, growth potential for distribution and technology services balanced by intense competition and risks associated with regulatory changes and growth. McKesson’s Stable trend reflects DBRS’s view that McKesson’s operating performance will remain acceptable for the current ratings, while the Company’s financial management intentions (including repayment or re-financing of maturing debt, further debt-financed acquisitions and/or share repurchases) would most likely determine any near-term rating actions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating Companies in the Merchandising Industry, which can be found on our website under Methodologies.

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