UPDATE 4-McKesson to buy US Oncology, boost specialty share

* Deal valued at $2.16 bln, including $1.6 bln in debt

* Will control 25 pct of specialty distribution market

* To modestly boost earnings beginning in FY 2012

* Private equity firm Welsh Carson had bought in 2004

* McKesson shares rise 1.8 percent
(Rewrites, adds analyst comments, updates stock movement)

NEW YORK, Nov 1 (BestGrowthStock) – Pharmaceutical distributor
McKesson Corp (MCK.N: ) plans to buy privately held US Oncology
Inc [ONCOLO.UL] in a deal to expand its services in the
fast-growing area of cancer care.

McKesson valued the deal at $2.16 billion, but said this
included assumption of outstanding debt of about $1.6 billion.
US Oncology was bought in 2004 by private equity firm Welsh,
Carson, Anderson and Stowe for $1.7 billion.

McKesson, one of the three largest U.S. drug wholesalers,
said on Monday the transaction, expected to close by year end,
will modestly boost its earnings beginning in its 2012 fiscal
year. Its shares rose 1.8 percent.

The deal would give McKesson a 25 percent share of the
specialty distribution market and a significant exposure to the
lucrative, high-margin oncology space, analysts said.

“The recent focus on expanding specialty pharma platforms
(oncology specifically) is not surprising given the superior
growth and margin profiles of the segment, especially relative
to that of traditional branded drug distribution,” Jefferies
and Co analyst Richard Close said in a research note.

According to the National Institute of Health, total cancer
costs amount to about $264 billion annually, with about $103
billion of that being direct medical costs, Close added.

Pharmaceutical service companies are moving to increase
their capabilities in specialty medicines that treat cancer and
other areas, whose sales are growing rapidly. These medicines
are often expensive and tend to be injected or infused or
otherwise require special handling or care.

Woodlands, Texas-based US Oncology is affiliated with more
than 1,300 oncologists and provides services such as back
office support and research. The company has annual revenue of
$3.5 billion, according to the Welsh Carson website.

McKesson broke into the cancer market in 2007, when it
bought Oncology Therapeutics Network, a U.S. distributor of
specialty pharmaceuticals, for about $575 million.

With US Oncology, McKesson will still trail
AmerisourceBergen Corp (ABC.N: ) in the oncology distribution
area, according to Lazard Capital Markets analyst Tom
Gallucci.

Earlier this year, another distributor, Cardinal Health Inc
(CAH.N: ) acquired privately held Healthcare Solutions Holding
for $517 million in cash to expand its specialty medicines
business. [ID:nN09123402]

On a conference call with analysts, McKesson said it would
fund the deal through a combination of cash and short-term
financing.

McKesson plans to refinance substantially all of US
Oncology’s debt and expects to replace it with permanent
financing.

McKesson “generates substantial free cash flow and could
reduce debt quickly if it desired, but we do not expect
management to cut back on share repurchases or race to pay down
debt,” said Carol Levenson of Gimme Credit, an independent
research service on corporate bonds.

The price also includes the acquisition of an estimated
$150 million to $160 million in cash tax benefits.

McKesson shares rose $1.21 to $67.19 in afternoon trading
on the New York Stock Exchange.
(Reporting by Lewis Krauskopf and Esha Dey; editing by Dave
Zimmerman)

UPDATE 4-McKesson to buy US Oncology, boost specialty share