Syncor Inc. acquired by Cardinal Health.

On the morning of June 14, Woodland Hills-based Syncor International Inc. announced it was pulling the plug on its medical imaging business. That was followed two hours later by the announcement that the company that has based its recent growth strategy on acquisitions was being acquired itself.

Drug wholesaler Cardinal Health Inc. of Ohio has agreed to acquire Syncor, the largest nuclear medicine distributor in the world.

Syncor's move to dump its series of standalone medical imaging clinics ends its efforts at diversifying its business and returns the company to its successful core nuclear medicine business, this time as a division of Cardinal Health.

In a deal valued at about $867 million, Cardinal Health will assume Syncor's $202 million debt and issue stock to pay for the purchase price. Syncor shareholders will receive 0.52 shares of Cardinal Health for each share of Syncor stock.

The day of the acquisition announcement, Syncor's Nasdaq-traded stock rose 12 percent, or $3.24, to $31.45, and Cardinal's stock dropped 1 percent, or 41 cents, to $61.94. Syncor closed June 21 at $32.88; Cardinal closed June21 at $64.56.

For nearly 20 years, Syncor has made and distributed radioactive compounds used for diagnostic or therapeutic purposes, allowing doctors to treat patients without surgery.

Prior to the acquisition announcement, Syncar said it would sell its Comprehensive Medical Imaging division which operates 67 medical imaging centers, including 24 in Southern California, five of those in the San Fernando Valley.

The centers offer MRIs, X-rays, CT scans, mammograms and ultrasounds. Although the centers were consistent with the company's diversification strategy and boosted revenue, they proved expensive to acquire, costing on the average more than $2 million apiece.

In divesting its imaging unit, Syncor puts an end to its four-year-old diversification efforts that sought to improve revenue and grow a business that had been dedicated solely to radiopharmaceuticals. The company said that for the current quarter, it would take an after-tax charge of between $22 million and $24 million related to the potential divestiture.

"They got in that business to diversify the company and they wanted to really grow it, but they ran into some capital problems and in the end they didn't think it would fit their operation," said Andrew Speller, an analyst with AG Edwards & Sons Inc.

For the quarter ending March 31, operating income for the company's imaging unit dropped slightly from the same quarter a year earlier, from $4.5 million to $4.1 million. Its core pharmaceutical business showed an operating income increase of $4 million, going from $19.8 million to $23.8 million.

During the quarter, the imaging unit reported a slight increase in revenue, going from $38.5 million in the same period last year to $40 million, while its pharmacy business grew from $133.3 million to $164.1 million.

"We will now concentrate on our radiopharmaceutical business," said Syncor CEO Robert G. Funari. "Our growth has been principally in the use of medicine in heart disease, but we see growing use of nuclear medicine in the treatment of cancer."

Last year, Syncor's overall sales increased by 23 percent over a year earlier, with $37.9 million in net income on sales of $774.7 million, compared to $29.5 million in net income on $629.4 million in sales in 2000.

The company also operates Syncor Overseas Ltd., offering radiopharmacy and medical imaging services in Europe, Asia, Africa, Latin America and Australia.

Robert Walter, Cardinal Health chairman and CEO, said during a conference call last week that Syncor's large distribution network of 150 nuclear pharmacies serving more than 7,000 clinics and hospitals was the key reason for the purchase.

"It will allow us to expand our growth potential to our customers," Walter said.

Speller said, "Cardinal wants to be number one or number two in all the businesses they operate, and in radiopharmaceuticals they were number three, which didn't sit too well with them.

"So this makes them number one."

It was unclear how the merger would affect Syncor's relationship with Bristol-Myers Squibb Co., responsible for 42 percent of Syncor's sales last year. Syncor distributes Bristol-Myers' Cardiolite, a compound that uses radiation to measure levels of blood flow in and around the heart in what is called cardiac perfusion imaging.

Lawrence Marsh, an analyst with Lehman Brothers Holdings Inc., said the deal would likely not change Syncor's dealings with the drug company.

Walter said he plans to meet soon with Bristol-Myers officials, but would not elaborate further.

"The discussions that we would intend to have with Bristol-Myers would be of a different nature than what Syncor has talked with them in the past," he said.

Syncor' s contract with Bristol-Myers expires at the end of 2003.

Syncor distributes a variety of other products, including Iodine 123, used to detect thyroid disorders, and FDG, a compound used in positron emission tomography, an imaging system used to evaluate heart disease and several forms of cancer.

Other questions about how the merger will affect Syncor's workforce remain unanswered. Syncor employs 4,100 people in facilities around the world, about 250 at its Woodland Hills headquarters.

According to an internal memo distributed to Syncor employees last week, no layoffs have been approved, although they could take place after an internal study is completed to determine whether job duplications were taking place.

"We haven't yet decided where we could contract and where we could expand," Walter said.

Syncor's headquarters would remain in Woodland Hills for the time being, according to the memo.

Funari said he and other senior management staff have agreed to stay on through a transition period.

"We both recognize the value of our people and we want to minimize the impact of all this on all of our employees," he said.

AG Edwards' Speller said Cardinal's move to acquire Syncor took him by surprise. Nevertheless, he felt it would ultimately benefit both companies.

"In the end, Syncor shareholders will be really happy with Cardinal Health because they're going to have a bigger platform than they had before, and deeper pockets," he said.

Like Syncor, Cardinal's strategy has been growth through acquisition. Since February 1999, Cardinal has acquired 32 companies, mostly in the medical surgical equipment field. In February, it closed a $2.2 billion acquisition of Ohio-based pharmaceutical distributor Bindley Western Industries Inc. It is in the middle of a $200 million purchase of New Jersey-based Boron, LePore & Associates, a firm that conducts medical conferences and provides marketing services.

Lehman Brothers' Marsh said the deal will further entrench Syncor in the nuclear medicine market.

"It's a great fit for the two companies," he said.

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Syncor International Corp.

Stock Prices


June 21, 2001  $27.00
June 21, 2002  $32.88

Note: Table made from line graph