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Henry Schein to Merge Animal Health with Vets First Choice

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Apr. 24 2018, Updated 12:39 p.m. ET

Overview

On April 23, Henry Schein (HSIC) announced its plans to spin off and merge its animal health business with Vets First Choice to form a joint venture, Vets First Corp., aimed to advance animal healthcare and benefit veterinarians, pets, product manufacturers, and pet owners.

Henry Schein, one of the world’s largest global supply chain providers of animal health products, has established a top market position in North America, Europe, Australia, and New Zealand. Over 50% of US animal health practices use Henry Schein’s practice management software platform to promote office productivity and customer engagement. Also, Henry Schein has a team of ~4,300 members, and 75% of US veterinarians are active customers. Henry Schein’s active customers also include ~70% of veterinarians in Europe, Australia, and New Zealand. Vets First Choice, founded in 2010, has rapidly expanded to become a leading provider of technology-enabled animal healthcare services.

The new company, Vets First Corp., could become a leading player in animal healthcare services. It’s expected to use the strength of both companies and provide veterinarians with a new platform to develop their practices, improve client engagement, and provide better health outcomes for pets.

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Details of the transaction

The deal between Vets First Choice and Henry Schein, structured as a Reverse Morris Trust transaction, is expected to be a tax-free spin-off to Henry Schein shareholders. In an April 23 press release, Henry Schein said that it expects Vets First common stock to be distributed to Henry Schein shareholders in connection with the animal health business spin-off, and then distributed to Vets First Choice shareholders in the following merger.

Immediately after the transaction, Henry Schein shareholders are expected to have a 63% share of Vets First Corp., while Vets First Choice investors are expected to have a 37% share. Also, as part of the transaction, Henry Schein is set to receive $1.0 billion–$1.3 billion in cash on a tax-free basis.

In 4Q17, Henry Schein reported revenue of $3.3 billion, representing 6.3% year-over-year growth. Animal healthcare companies Zoetis (ZTS), Merck Animal Health (MRK), and Eli Lilly’s (LLY) Elanco reported revenue of $1.5 billion, $981 million, and $790 million, respectively.

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