Cardinal denies buyout talks after shares spike

By Lewis Krauskopf

NEW YORK (BestGrowthStock) – Cardinal Health Inc (CAH.N: ) denied having any talks about selling itself after market chatter about a possible leveraged buyout sent shares of the U.S. drug wholesaler up as much as 5.6 percent.

“While it is our longstanding practice not to respond to market rumors and speculation, we are making an exception in this limited situation,” the company said in a statement.

“Cardinal Health is not in discussions with any party regarding an acquisition of Cardinal Health. We do not expect to have further comment on this matter.”

Shares of Cardinal, with a market value of more than $11 billion, had been up as high as $34.23 on the New York Stock Exchange. After the statement, they fell back to $33.11, which still amounted to a daily gain of 70 cents, or 2 percent.

“There’s some chatter out in the marketplace of Cardinal being a possible LBO candidate and I think that got into the market here today and is driving it up,” Jefferies & Co analyst Richard Close said before Cardinal issued its statement.

By mid-day, volume in Cardinal shares was nearly double its average daily level of the past 50 days.

Some of the speculation appeared to stem from a widening of the spread of Cardinal’s credit default swaps.

Its credit default swap costs jumped by around 13 basis points on Tuesday to 156 basis points, or $156,000 per year to insure $10 million in debt for five years, according to Markit Intraday. The swaps have more than doubled from 60 basis points on October 14, according to Markit.

Such a spike indicates an expectation of worsening credit quality, which could point to speculation of an impending LBO because such buyouts require the target companies to take on heavy debt.

Before the company’s statement, Lazard Capital Markets analyst Tom Gallucci said it appeared that Cardinal shares were rising in response to a report pointing out the widening credit default swap spread was suggestive of a potential LBO.

Gallucci said the wider CDS spread could reflect “myriad” possibilities, including a major stock buyback or an acquisition by Cardinal.

“While we have no knowledge of Cardinal’s plans and recognize that the cash flows of the business could well enable an LBO of a drug wholesaler, as a matter of perspective it is important to be aware that various things can drive CDS spreads higher,” Gallucci said in a research note.

Cardinal’s share rise also came as rival McKesson Corp (MCK.N: ) was due to report quarterly earnings after the market closes.

Close said that McKesson has also been mentioned in the past as a possible LBO candidate, and noted that wholesalers, which also include AmerisourceBergen Corp (ABC.N: ), generate significant cash flow.

Cardinal “is not trading at historical high valuations by any means so that could definitely be one of the reasons for the chatter,” Close said.

Amerisource shares were up 1 percent at $32.35, while McKesson’s were up 0.3 percent at $61.89.

(Reporting by Lewis Krauskopf and Karen Brettell, editing by Dave Zimmerman)

Cardinal denies buyout talks after shares spike