Proposed Healthcare Technology Net Asset Exchange

On June 28, 2016, McKesson entered into a contribution agreement as well as various other agreements (“Agreements”) with Change Healthcare Holdings, Inc. (“Change Healthcare”), a Delaware corporation, and others to form a joint venture (“JV”). Under the terms of the Agreements, McKesson will contribute the majority of its McKesson Technology Solutions businesses (“Core MTS Business”) to the JV. McKesson will retain its RelayHealth Pharmacy and Enterprise Information Solutions (“EIS”) businesses. Change Healthcare will contribute substantially all of its businesses to the JV excluding its pharmacy switch and prescription routing businesses. The purpose of the JV is to create a new healthcare information technology company, which will bring together the complementary strengths of the Core MTS Business and Change Healthcare to deliver a broad portfolio of solutions that will help lower healthcare costs, improve patient access and outcomes, and make it simpler for payers, providers and consumers to manage the transition to value-based care.

The completion of the transaction is subject to certain closing conditions, including antitrust clearance. The transaction is expected to close in the first half of calendar year 2017. Upon formation of the JV, McKesson and Change Healthcare shareholders are expected to own approximately 70% and 30% of the JV. The JV will be jointly governed by McKesson and Change Healthcare shareholders. The Company refers to the foregoing transaction as “Healthcare Technology Net Assets Exchange”. McKesson and Change Healthcare have agreed that they will take steps to launch an initial public offering of an entity holding equity in the JV in the months following the close of the transaction, subject to market conditions. Thereafter, McKesson expects to exit its investment in the JV in a transaction that is intended to qualify as tax-free for U.S. federal income tax purposes under Section 355 of the Internal Revenue Code.

During the second quarter and first half of 2017, we recorded $21 million and $25 million of expenses associated with this proposed transaction, which are primarily recorded in Operating Expenses within our Technology Solutions segment in the accompanying condensed consolidated statements of operations.

In connection with the transaction, the JV has received commitments from certain banks for $6.1 billion of long-term debt financing. The proceeds are expected to be utilized for the repayment of the existing debt of Change Healthcare, cash distributions to Change Healthcare shareholders and McKesson and reimbursements of the transaction-related expenses incurred by McKesson and Change Healthcare.

Assets and Liabilities Held for Sale

During the second quarter of 2017, the assets and liabilities of the Core MTS Business to be contributed to the JV met the criteria to be classified as held for sale. The net asset exchange transaction does not meet the criteria to be reported as a discontinued operation as it does not constitute a significant strategic business shift. Accordingly, at September 30, 2016, $1.8 billion of assets and $0.6 billion of liabilities related to the Core MTS Business are included in “Current assets held for sale” and “Current liabilities held for sale” in the accompanying condensed consolidated balance sheet.

The following table summarizes the carrying amounts of major classes of assets and liabilities held for sale:



(In millions)	September 30, 2016
Receivables, net	$	319
Other current assets	115
Goodwill	1,075
Intangible assets, net	95
Other noncurrent assets	163
Current assets held for sale	$	1,767
Deferred revenue	$	409
Other current liabilities	146
Other noncurrent liabilities	49
Current liabilities held for sale	$	604