Business Acquisitions and Divestitures

12 Months Ended

Mar. 31, 2022

Business Combination and Asset Acquisition [Abstract]

Acquisitions

During 2022, 2021, and 2020, the Company did not complete any material acquisitions. For the three years presented, the Company completed several de minimis acquisitions within its operating segments. Financial results for the Company’s business acquisitions have been included in the Company’s consolidated financial statements since their respective acquisition dates. Purchase prices for business acquisitions have been allocated based on estimated fair values at the respective acquisition dates. Goodwill recognized for business acquisitions is generally not expected to be deductible for tax purposes. However, if the assets of another company are acquired, the goodwill may be deductible for tax purposes.

Divestitures

In July 2021, the Company announced its intention to exit its businesses in Europe. In 2022, the Company entered into agreements to sell the E.U. disposal group and U.K. disposal group and completed the previously announced sale of its Austrian business, as described in Financial Note 2, “Held for Sale.” In 2021, the Company contributed the majority of its German pharmaceutical wholesale business to a newly formed joint venture with WBA as discussed in Financial Note 2, “Held for Sale,” and, in 2022, sold its interest in the joint venture to WBA, as described in Financial Note 6, “Other Income, Net.” In 2020, the Company completed the separation of the Change Healthcare JV, as described below.

Investment in the Change Healthcare Joint Venture

In the fourth quarter of 2017, the Company contributed the majority of its McKesson Technology Solutions businesses to form a joint venture, the Change Healthcare JV, under a contribution agreement between McKesson and Change Healthcare Inc. (“Change”) and others, including shareholders of Change. In exchange for the contribution, the Company initially owned approximately 70% of the joint venture, with the remaining equity ownership of approximately 30% held by Change. The Change Healthcare JV was jointly governed by McKesson and shareholders of Change.

On June 27, 2019, common stock and certain other securities of Change began trading on the NASDAQ (“IPO”). Change was a holding company and did not own any material assets or have any operations other than its interest in the Change Healthcare JV. On July 1, 2019, upon the completion of its IPO, Change contributed net cash proceeds it received from its offering of common stock to the Change Healthcare JV in exchange for additional membership interests of the Change Healthcare JV (“LLC Units”). As a result, McKesson’s equity interest in the Change Healthcare JV was diluted from approximately 70% to approximately 58.5%. Accordingly, in the second quarter of 2020, the Company recognized a dilution loss of $246 million, primarily representing the difference between its proportionate share of the IPO proceeds and the dilution effect on the investment’s carrying value. This amount was included in “Equity earnings and charges from investment in Change Healthcare Joint Venture” in the Company’s Consolidated Statement of Operations for the year ended March 31, 2020.

In the second quarter of 2020, the Company recorded an other-than-temporary impairment (“OTTI”) charge of $1.2 billion to its investment in the Change Healthcare JV, representing the difference between the carrying value of the Company’s investment and the fair value derived from the corresponding closing price of Change’s common stock at September 30, 2019. This charge was included in “Equity earnings and charges from investment in Change Healthcare Joint Venture” in the Company’s Consolidated Statement of Operations for the year ended March 31, 2020.

Separation of the Change Healthcare Joint Venture

On March 10, 2020, the Company completed the separation of its interest in the Change Healthcare JV. The separation was affected through the split-off of PF2 SpinCo, Inc. (“SpinCo”), a wholly-owned subsidiary of the Company that held all of the Company’s interest in the Change Healthcare JV, to certain of the Company’s stockholders through an exchange offer (“Split-off”), followed by the merger of SpinCo with and into Change, with Change surviving the merger (“Merger”).

In connection with the Split-off, on March 9, 2020, the Company distributed all 176.0 million outstanding shares of common stock of SpinCo to participating holders of the Company’s common stock in exchange for 15.4 million shares of McKesson common stock which now are held as treasury stock on the Company’s Consolidated Balance Sheets. Refer to Financial Note 19, “Stockholders' Equity (Deficit),” for more information. Following consummation of the exchange offer, on March 10, 2020, SpinCo was merged with and into Change Healthcare, and each share of SpinCo common stock converted into one share of Change common stock, par value $0.001 per share, with cash being paid in lieu of fractional shares of Change common stock. The Split-off and the Merger are intended to be generally tax-free transactions for U.S. federal income tax purposes. Following the Split-off, the Company does not beneficially own any of Change’s outstanding securities. In the fourth quarter of 2020, the Company recognized a net gain of $414 million related to the transaction which is included under the caption “Equity earnings and charges from investment in Change Healthcare Joint Venture” in the Company’s Consolidated Statement of Operations for the year ended March 31, 2020. The net gain was calculated as follows:


(In millions, except per share data)
Fair value of McKesson common stock accepted (15.4 million shares at $131.97 per share on March 9, 2020)	$	2,036
Investment in the Change Healthcare JV at exchange date	(2,096)
Reversal of deferred tax liability (1)	521
Release of accumulated other comprehensive loss attributable to the joint venture	(24)
Less: Transaction costs incurred	(23)
Net gain on split-off of the Change Healthcare JV	$	414

(1)Under the agreement with the Change Healthcare JV, McKesson, Change, and certain subsidiaries of the Change Healthcare JV, there may be changes in future periods to the amount reversed as the relevant periods are audited by tax authorities. Any such change is not expected to have a material impact on the Company’s consolidated financial statements.

Equity Method Investment in the Change Healthcare Joint Venture

Until the separation of the Company’s interest in the Change Healthcare JV, this investment was accounted for using the equity method of accounting. Effective April 1, 2019, the Change Healthcare JV adopted the amended revenue recognition guidance and, in the first quarter of 2020, the Company recorded its proportionate share of the joint venture’s adoption impact of the amended revenue recognition guidance of approximately $80 million, net of tax, in the Company’s opening retained earnings.

Excluding the OTTI and transaction-related items described above, the Company recorded its proportionate share of loss from its investment in the Change Healthcare JV of $119 million in 2020, which includes transaction and integration expenses incurred by the Change Healthcare JV and basis differences between the joint venture and McKesson, including amortization of fair value adjustments primarily representing incremental intangible amortization and removal of profit associated with the recognition of deferred revenue. This amount was recorded under the caption “Equity earnings and charges from investment in Change Healthcare Joint Venture” in the Company’s Consolidated Statement of Operations for the year ended March 31, 2020.

Related Party Transactions

In connection with the formation of the Change Healthcare JV, McKesson, the Change Healthcare JV, and certain shareholders of Change entered into various ancillary agreements, including a transition services agreement (“TSA”), a transaction and advisory fee agreement (“Advisory Agreement”), a tax receivable agreement (“TRA”) and certain other agreements. The Advisory Agreement was terminated in 2020 and fees incurred or earned from the agreement were not material for 2020. Fees incurred or earned from the TSA were not material in 2022 nor 2021 and were $22 million in 2020.

Under the TRA, McKesson had the ability to adjust the manner in which certain depreciation or amortization deductions are allocated among Change and McKesson. McKesson exercised its right under the agreement and allocated certain depreciation and amortization deductions to Change for the tax year ended March 31, 2020.

After McKesson’s separation of its interest in the Change Healthcare JV, the aforementioned TRA agreement requires the Change Healthcare JV to pay McKesson 85% of the net cash tax savings realized, or deemed to be realized, by Change resulting from the depreciation or amortization allocated to Change by McKesson. The receipt of any payments from the Change Healthcare JV under the TRA is dependent upon Change benefiting from this depreciation or amortization in future tax return filings. This creates uncertainty over the amount, timing, and probability of the gain recognized. As such, the Company accounts for the TRA as a gain contingency, with no receivable recognized as of March 31, 2022 or 2021.