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 (“New Company”). Under the terms of the Agreements, McKesson will contribute the majority of its McKesson Technology Solutions businesses (“Core MTS Business”) to the New Company. McKesson will retain its RelayHealth Pharmacy and Enterprise Information Solutions (“EIS”) businesses. Change Healthcare will contribute substantially all of its businesses to the New Company excluding its pharmacy switch and prescription routing businesses. The purpose of the transaction 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 provide software and analytics, network solutions and technology-enabled services that will help customers obtain actionable insights, exchange mission-critical information, control costs, optimize revenue opportunities, increase cash flow and effectively navigate the shift to value-based healthcare.

McKesson and Change Healthcare have agreed that they will take steps to launch an initial public offering of an entity holding equity in the New Company in the months following the close of the transaction, subject to market conditions. Thereafter, McKesson expects to exit its investment in the New Company in a transaction that is intended to qualify as a tax-free spin-off for U.S. federal income tax purposes under Section 355 of the Internal Revenue Code.

In connection with the transaction, the New Company has received $6.1 billion of committed financing, including a $1.2 billion bridge loan facility, from certain banks. The proceeds are expected to be utilized for the repayment of the existing debt of Change Healthcare, financing costs and payments to Change Healthcare shareholders and McKesson, including reimbursements of certain transaction-related expenses incurred by McKesson and Change Healthcare.

On December 21, 2016, McKesson and Change Healthcare announced that it had received notification that the Department of Justice had closed its review and terminated the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Subject to satisfaction of these other closing conditions, the acquisition is expected to close in the first half of calendar year 2017. Upon formation of the New Company, McKesson and Change Healthcare shareholders are expected to own approximately 70% and 30% of the New Company. The New Company will be jointly governed by McKesson and Change Healthcare shareholders. The Company refers to the foregoing transaction as “Healthcare Technology Net Asset Exchange”.

On January 5, 2017, McKesson and Change Healthcare announced that the companies decided the name of the New Company will be Change Healthcare.

During the third quarter and first nine months of 2017, we recorded $31 million and $58 million of expenses directly 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.

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 New Company 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 December 31, 2016, $1.9 billion of assets and $0.7 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. Depreciation and amortization related to the long-lived assets ceased as of the date they were determined as held for sale.

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



(In millions)	December 31, 2016
Receivables, net	$	433
Other current assets	120
Goodwill	1,071
Intangible assets, net	92
Other noncurrent assets	176
Current assets held for sale	$	1,892
Deferred revenue	$	482
Other current liabilities	149
Other noncurrent liabilities	62
Current liabilities held for sale	$	693