McKesson 2009 Annual Report Download - page 45

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
39
In 2007, we made the following acquisitions and investment:
−On January 26, 2007, we acquired all of the outstanding shares of Per-Se of Alpharetta, Georgia for $28.00 per
share in cash plus the assumption of Per-Se’s debt, or approximately $1.8 billion in aggregate, including cash
acquired of $76 million. Per-Se is a leading provider of financial and administrative healthcare solutions for
hospitals, physicians and retail pharmacies. The acquisition of Per-Se is consistent with the Company’s strategy
of providing products that help solve clinical, financial and business processes within the healthcare industry.
The acquisition was initially funded with cash on hand and through the use of an interim credit facility. In
March 2007, we issued $1 billion of long-term debt, with such net proceeds after offering expenses from the
issuance, together with cash on hand, being used to fully repay borrowings outstanding under the interim credit
facility (refer to Financial Note 12, “Long-Term Debt and Other Financing” to the accompanying consolidated
financial statements). Financial results for Per-Se are primarily included within our Technology Solutions
segment.
Approximately $1,258 million of the purchase price allocation has been assigned to goodwill, which primarily
reflects the expected future benefits from synergies upon integrating the business. Included in the purchase
price allocation are acquired identifiable intangibles of $402 million representing customer relationships with a
weighted-average life of 10 years, developed technology of $56 million with a weighted-average life of 5 years
and trademark and trade names of $13 million with a weighted-average life of 5 years.
In connection with the purchase price allocation, we have estimated the fair value of the support obligations
assumed from Per-Se in connection with the acquisition. The estimated fair value of these obligations was
determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating
the costs relating to fulfilling the obligations plus a normal profit margin. The sum of the costs and operating
profit approximates, in theory, the amount that we would be required to pay a third party to assume these
obligations. As a result, in allocating the purchase price, we recorded an adjustment to reduce the carrying
value of Per-Se’s deferred revenue by $17 million to $30 million, which represents our estimate of the fair value
of the obligation assumed.
−Our Technology Solutions segment acquired RelayHealth Corporation (“RelayHealth”) based in Emeryville,
California. RelayHealth is a provider of secure online healthcare communication services linking patients,
healthcare professionals, payors and pharmacies. This segment also acquired two other entities, one
specializing in patient billing solutions designed to simplify and enhance healthcare providers’ financial
interactions with their patients and the other a provider of integrated software for electronic health records,
medical billing and appointment scheduling for independent physician practices. The total cost of these three
entities was $90 million, which was paid in cash. Goodwill recognized in these transactions amounted to $63
million.
−Our Distribution Solutions segment acquired Sterling Medical Services, LLC (“Sterling,”) which is based in
Moorestown, New Jersey. Sterling is a national provider and distributor of disposable medical supplies, health
management services and quality management programs to the home care market. This segment also acquired a
medical supply sourcing agent. The total cost of these two entities was $95 million, which was paid in cash.
Goodwill recognized in these transactions amounted to $47 million.
−We contributed $36 million in cash and $45 million in net assets primarily from our Pharmacy Systems and
Automation business to Parata, in exchange for a significant minority interest in Parata. Parata is a
manufacturer of pharmacy robotic equipment.