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Henry Schein to spin off $3.5 billion veterinary supply business

The animal health supplies business will merge with Vets First Choice, and be based in Portland, Maine.

The worldwide corporate headquarters of Henry Schein Inc.

The worldwide corporate headquarters of Henry Schein Inc. in Melville. Photo Credit: Barry Sloan

Henry Schein Inc., Long Island's largest publicly traded company by revenue, Monday announced plans to spin off its $3.5 billion animal health supplies business and merge it with Vets First Choice.

The combined company, to be named Vets First Corp., will be based in Portland, Maine, where Vets First Choice is headquartered. 

Some minority holders of Henry Schein Animal Health subsidiaries will receive shares in the new company in exchange for their interest in the subsidiaries.

Those shareholders and current holders of Henry Schein Inc. stock will own about 63 percent of Vets First Corp., which is expected to be an independent, publicly traded company.

In addition, Melville-based Henry Schein expects to receive $1 billion to $1.25 billion in tax-free cash as part of the transaction.

The company said it plans to use the proceeds for acquisitions, share repurchases and debt repayments. 

Shares of Henry Schein rose 6.8 percent Monday to close at $73.79. A year ago they closed at $84.90.

Ben Shaw, founder and chief executive of 8-year-old Vets First Choice, will become chairman and CEO of the combined company. Henry Schein will nominate six directors to the board of the new company, and Vets First Choice will nominate five.

In a conference call Monday, Shaw said Vets First Choice had revenue of about $157 million in 2017 and posted "nearly 60 percent compound annual growth since 2014." 

Stanley Bergman will be a Vets First Choice board member and continue as chief executive and chairman of Henry Schein.

In a conference call Monday Bergman said that the companies expect "synergies for the combined companies" to exceed $100 million in operating income" in the third year.

He said the companies began discussing a deal in December.

One factor in pursuing the transaction was that "pure plays can be more valuable to investors," Bergman said, referring to companies focused on a single market.

About 4,300 of Henry Schein's 22,000 employees worldwide work for its animal health unit. Fewer than a dozen of them are based on Long Island.

The deal, Henry Schein's second major transaction this month, is expected to close by the end of 2018.

On April 3 the company said it is rolling its dental practice software unit into a majority owned joint venture with the dental business of Internet Brands, based in El Segundo, California. Financial terms were not disclosed on that transaction.

On Monday the company also announced that Karen Prange, executive vice president of Henry Schein Inc. and chief executive of the global animal health, medical and dental surgical group, had decided to leave the company.

Ross Muken, an analyst with Manhattan-based Evercore ISI, said in a research note that some investors would argue that the deal reduces Henry Schein's diversification and "you double down on higher risk" dental and medical businesses, which could face a threat from online giant Inc. 

Another analyst, Jeff Johnson of Robert W. Baird & Co. Inc., said that the spinoff reduces the "synergies" gained in putting sales of dental, medical and animal health supplies under one umbrella.

Henry Schein, with operations or affiliates in 34 countries, distributes products to the offices of dentists, physicians and veterinarians.

It had revenue of $12.5 billion in 2017. About 28 percent of that revenue came from the animal health unit and 48 percent from dental, its largest business.

Henry Schein Inc. by the numbers:

2017 revenue: $12.5 billion

Sales by market:

Dental: $6 billion

Animal health: $3.5 billion

Medical: $2.5 billion

Technology and value added services: $438 million

Full-time employees as of Dec. 30: 22,000

Source: SEC filings


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