Business Combinations

12 Months Ended

Mar. 31, 2016

Business Combinations [Abstract]

Business Combinations

Business Combinations

Acquisition of Celesio AG

On February 6, 2014, we completed the acquisition of 77.6% of the then outstanding common shares of Celesio and certain convertible bonds of Celesio for cash consideration of $4.5 billion, net of cash acquired (the “Acquisition”). Upon the acquisition, our ownership of Celesio’s fully diluted common shares was 75.6% and, as required, we consolidated Celesio’s debt with a fair value of $2.3 billion as a liability on our consolidated balance sheet. The Acquisition was initially funded by utilizing a senior bridge loan, our existing accounts receivable sales facility and cash on hand. Celesio is an international wholesale and retail company and a provider of logistics and services to the pharmaceutical and healthcare sectors. Celesio’s headquarters is in Stuttgart, Germany and it operates in 14 countries around the world. The acquisition of Celesio expanded our global geographic area. Financial results for continuing operations of Celesio are included within our International pharmaceutical distribution and services business, which is part of our Distribution Solutions segment, since the date of Acquisition.

From February 7, 2014 through March 31, 2014, substantially all of the convertible bonds issued by Celesio (held by both third parties and us) were converted into an additional 20.9 million common shares of Celesio and approximately $30 million in cash. At March 31, 2014, we owned approximately 75.4% of Celesio’s outstanding and fully diluted common shares.

Included in the purchase price allocation were acquired identifiable intangibles of $2.3 billion, the fair value of which was primarily determined by applying the income approach using unobservable inputs for projected cash flows and discount rates. These inputs are considered Level 3 under the fair value measurements and disclosure guidance. The fair value of the debt acquired was determined by quoted market prices in a less active market and other observable inputs from available market information, which are considered to be Level 2 inputs under the fair value measurements and disclosure guidance. The fair value of the noncontrolling interests for the Celesio common shares that were not acquired by McKesson was $1,505 million and was determined by a quoted market price that is considered to be a Level 1 input under the fair value measurements and disclosure guidance.

The excess of the purchase price and the noncontrolling interests over the fair value of the acquired net assets of $4.2 billion has been allocated to goodwill, which primarily reflects the expected future benefits to be realized upon integrating the business. Most of the goodwill is not expected to be deductible for tax purposes.

Refer to Financial Note 10, “Noncontrolling Interests and Redeemable Noncontrolling Interests” for information on the domination and profit and loss transfer agreement entered into between McKesson and Celesio during fiscal 2015.

Other Acquisitions

In July 2015, we entered into an agreement to purchase the pharmacy business of J Sainsbury Plc (“Sainsbury”) based in the United Kingdom (“U.K.”). Under the terms of the agreement, on February 29, 2016, we made an advance cash payment of $174 million representing the full purchase consideration, which is included in “Other Noncurrent Assets” within our consolidated balance sheet at March 31, 2016. The advance payment bears interest at an annual rate of 3.3%, compounded daily, from February 29, 2016 until the closing of the transaction. The interest will be paid to us in full on the closing date. The U.K. business is currently being reviewed by the U.K. Competition and Markets Authority (the “U.K. CMA”). We anticipate obtaining U.K. CMA clearance during the first quarter of 2017. Once completed, this acquisition will further enhance our retail pharmacy service capabilities in the U.K. Upon closing, the acquired Sainsbury business will be included in our International pharmaceutical distribution and services business within our Distribution Solutions segment.

In September 2015, we entered into an agreement to purchase the pharmaceutical distribution business of UDG Healthcare Plc (“UDG”) based in Ireland and the U.K. During the fourth quarter of 2016, we paid the net purchase consideration of $412 million into an escrow account, which is included in “Other Noncurrent Assets” within our consolidated balance sheet at March 31, 2016. The acquisition was completed on April 1, 2016. The acquired UDG business primarily provides pharmaceutical and other healthcare products to retail and hospital pharmacies.  The acquisition of UDG will expand our offerings and strengthen our market position in Ireland and the U.K. The U.K. business is currently being reviewed by the U.K. CMA and as a result, we have limited 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.