Business Combinations

3 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

Business Combinations

Business Combinations

Vantage Oncology Holdings LLC & Biologics, Inc.

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 $515 million was funded from cash on hand. On April 1, 2016, we also acquired Biologics, Inc. (“Biologics”) for net purchase consideration of $692 million, which was funded from cash on hand. Biologics is the largest independent oncology-focused specialty pharmacy in the U.S., and is headquartered in Cary, North Carolina. Financial results for these acquisitions since the acquisition date are included in our results of operations within our North America pharmaceutical distribution and services business, which is part of our Distribution Solutions segment. These acquisitions will collectively enhance our specialty pharmaceutical distribution scale and oncology-focused pharmacy offerings, provide solutions for manufacturers and payers, and expand the scope of our community-based oncology and practice management services.

Approximately $606 million and $613 million of the preliminary purchase price allocations for Vantage and Biologics have been assigned to goodwill, which primarily reflects the expected future benefits of synergies upon integrating the businesses. Goodwill represents the excess of the purchase price and the fair value of noncontrolling interests over the fair value of the acquired net assets. Most of the goodwill is not expected to be deductible for tax purposes. The preliminary fair value of Vantage’s noncontrolling interests as of the acquisition date was approximately $152 million, which represents the portion of net assets of Vantage’s consolidated entities that is not allocable to McKesson.

Included in the preliminary purchase price allocation are acquired identifiable intangibles of $24 million and $112 million for Vantage and Biologics. Acquired intangibles for Vantage primarily consist of $14 million of non-competition agreements with a weighted average life of 4 years, and for Biologics primarily consist of $65 million of trademarks with a weighted average life of 14 years and $32 million of supply agreements with a weighted average life of 3 years.

The following table summarizes the preliminary recording of the fair values of the assets acquired and liabilities assumed for these two acquisitions as of the acquisition date. Due to the recent timing and complexity of the acquisitions, these amounts are provisional and subject to change as our fair value assessments are finalized.

(In millions)	Amounts Recognized as of Acquisition Date (Provisional)
Receivables	$	106
Other current assets, net of cash and cash equivalents acquired	19
Goodwill	1,219
Intangible assets	136
Other long-term assets	76
Current liabilities	(117		)
Other long-term liabilities	(80		)
Fair value of net assets, less cash and cash equivalents	1,359
Less: Noncontrolling Interests	(152		)
Net assets acquired, net of cash and cash equivalents	$	1,207

UDG Healthcare Plc (“UDG”)

On April 1, 2016, we completed our acquisition of the pharmaceutical distribution businesses of UDG based in Ireland and the United Kingdom (“U.K.”) with a net purchase consideration of $447 million, which was funded with cash on hand. The acquired UDG businesses primarily provide 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. Financial results for UDG since the acquisition date are included in our results of operations within our International pharmaceutical distribution and services business, which is part of our Distribution Solutions segment.

Total assets and liabilities acquired, excluding goodwill and intangibles, were $497 million and $329 million. Approximately $165 million of the preliminary purchase price allocation has been assigned to goodwill, which reflects the expected future benefits of synergies upon integrating the businesses. Most of the goodwill is not expected to be deductible for tax purposes. Included in the preliminary purchase price allocation are acquired identifiable intangibles of $114 million primarily representing customer relationships with a weighted average life of 10 years.

The fair value of acquired intangibles for Vantage, Biologics and UDG was primarily determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 inputs under the fair value measurements and disclosure guidance. Amounts recognized are provisional and subject to change as our fair value assessments are finalized.

Other Acquisitions

In July 2015, we entered into an agreement to purchase the pharmacy business of J Sainsbury Plc (“Sainsbury”) based in the 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 condensed consolidated balance sheet at June 30, 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 proposed transaction is currently being reviewed by the U.K. Competition and Markets Authority (“U.K. CMA”). We anticipate obtaining U.K. CMA clearance during the second 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 March 2016, we entered into an agreement to purchase substantially all of the assets of Rexall Health from the Katz Group Canada, Inc. (“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 June 30, 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, financial results of the acquired business will be included in our North America pharmaceutical distribution and services business within our Distribution Solutions segment.

During the last two 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.