McKesson 2016 Annual Report Download - page 86

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
control over this portion of the acquired business. We anticipate obtaining U.K. CMA clearance during the
second half of 2017. Upon closing, financial results for this acquisition will be included in our International
pharmaceutical distribution and services business within our Distribution Solutions segment.
On April 1, 2016, we acquired Vantage Oncology Holdings LLC (“Vantage”), which is headquartered in
Manhattan Beach, California. Vantage provides comprehensive oncology management services, including
radiation oncology, medical oncology, and other integrated cancer care services, through over 51 cancer
treatment facilities in 13 states. The net purchase consideration of $527 million was paid into an escrow account
prior to year end, and is included in “Other Noncurrent Assets” within our consolidated balance sheet at
March 31, 2016. Also on April 1, 2016, we acquired Biologics, Inc. (“Biologics”) for gross purchase
consideration of $700 million, which was funded from cash on hand. Biologics is the largest independent
oncology-focused specialty pharmacy in the U.S., which is headquartered in Cary, North Carolina. The financial
results of Vantage and Biologics will be included within our Distribution Solutions segment from the date of
acquisition. These acquisitions will collectively enhance our specialty pharmaceutical distribution scale and
oncology-focused pharmacy offerings, solutions for manufacturers and payers, and expand the scope of our
community-based oncology and practice management services.
In March 2016, we entered into an agreement to purchase Rexall Health from Katz Group for $3 billion
Canadian dollars (or, approximately $2.3 billion U.S. dollars using the currency exchange ratio of 0.77 Canadian
dollar to 1 U.S. dollar as of March 31, 2016). Rexall Health, which operates approximately 470 retail pharmacies
in Canada, particularly in Ontario and Western Canada, will enhance our Canadian pharmaceutical supply chain.
The acquisition is subject to regulatory approval and expected to close during the second half of calendar year
2016. Upon closing, the acquired business will be included within our Distribution Solutions segment.
During the last three years, we also completed a number of other acquisitions within our Distribution
Solutions segment. Financial results for our business acquisitions have been included in our consolidated
financial statements since their respective acquisition dates. Purchase prices for our business acquisitions have
been allocated based on estimated fair values at the date of acquisition. Goodwill recognized for our business
acquisitions is generally not expected to be deductible for tax purposes. However, if we acquire the assets of a
company, the goodwill may be deductible for tax purposes.
3. Restructuring
On March 14, 2016, we committed to a restructuring plan to lower our operating costs (the “Cost Alignment
Plan”). The Cost Alignment Plan primarily consists of a reduction in workforce, and business process initiatives
that will be substantially implemented prior to the end of 2019. Business process initiatives primarily include
plans to reduce operating costs of our distribution and pharmacy operations, administrative support functions,
and technology platforms, as well as the disposal and abandonment of certain non-core businesses. As a result of
the Cost Alignment Plan, we expect to record total pre-tax charges of approximately $270 million to
$290 million, of which $229 million of pre-tax charges were recorded during the fourth quarter of 2016.
Estimated remaining charges primarily consist of exit-related costs and accelerated depreciation and
amortization, which are largely attributed to our Distribution Solutions segment.
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