When Jorge Gomez was named CFO of Cardinal Health’s pharmaceutical division this past February, he was taking charge of the finances of an operation about which he already knew a good deal. At the time, Gomez was serving as treasurer of its parent company, Dublin, Ohio-based Cardinal Health, a $103-billion drug distribution company, and prior to that, he had been the company’s controller. The pharmaceutical division accounts for $94 billion of Cardinal Health’s revenue.
“Cardinal Health has a pretty robust rotational program for helping executives become familiar with various roles in the company,” says Gomez, noting that the person he succeeded as CFO of the pharmaceutical unit moved into his previous job as corporate treasurer.
As treasurer, Gomez led the $5 billion spin-off of Cardinal Health’s medical technologies unit, CareFusion. The company decided the unit, with $4 billion in sales, was not a good fit with its strategic plan: to boost its credit ratings significantly and focus more on the drug distribution business, while increasing the company’s dividend and making it more of a value, growth and income play for investors at the same time.
Improving the rating agencies’ assessments of the parent company and spinning off a business in the midst of the financial crisis clearly posed challenges.
“2009 was not a great year to be doing an IPO,” Gomez concedes with a laugh. “But we and our advisers were pretty confident we could execute the deal, and we did it. It was very well received by investors.”
In fact, rather than selling 100% of CareFusion for $5 billion, Cardinal Health ended up selling 80% of the new company’s shares and holding onto 20%. Since the deal was completed, shares of both CareFusion and Cardinal have risen by 30%.
Gomez says the key to working with the rating agencies was providing “good transparency” in explaining the company’s financial strategy. “I walked them all through the key elements of our strategy in terms of the ratings we aspired to, in terms of total returns,” he says. “We had set two- and three-year targets, and we met them.”
By July 2010, Standard & Poor’s had boosted its outlook on Cardinal Health’s BBB+ rating from stable to positive, after Moody’s did the same two months earlier. In July 2011, S&P upped its long-term debt rating from BBB+ to A-, and earlier this year Moody’s raised the company’s long-term debt rating to Baa2 from Baa3.
Looking ahead, Gomez says the big challenge will be dealing with the significant changes facing the healthcare industry as the American population ages, the nation struggles with maintaining affordable healthcare, and companies like Cardinal Health work to deal with the new healthcare law reform.
“The Supreme Court decision upholding the Affordable Care Act was a step in the right direction towards more clarity,” Gomez says. “Of course, it will take some time for it all to settle down.”
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