Henry Schein to spin off, merge its animal health business with start-up

  • The health-care products distributor is spinning off its animal health business and merging it with Vets First Choice to form a new company called Vets First Corp.
  • The deal will combine Henry Schein's veterinary supplies, software for practices and distribution network with Vets First Choice's prescription management platform.
  • Americans are investing more in their pets, spurring interest from companies searching for growth. Meanwhile, the threat of Amazon's entry into health care looms.

Health-care products distributor Henry Schein is spinning off its animal health business and merging it with Vets First Choice to form a new company called Vets First Corp.

The deal, announced Monday, will combine Henry Schein's veterinary supplies, software for practices and distribution network with Vets First Choice's prescription management platform.

Henry Schein anticipates receiving from the transaction about $1 billion to $1.25 billion in cash on a tax-free basis. Its shareholders will own about 63 percent of the new company, and Vets First Choice shareholders will own about 37 percent of it.

Americans are investing more in their pets, spurring interest from companies searching for growth. In February, General Mills said it would buy pet food maker Blue Buffalo for $8 billion. M&M-owner Mars has bulked up its pet business, which includes Iams, Pedigree and Whiskas brands. Last year, it acquired animal hospital company VCA for $9.1 billion.

Meanwhile, the threat of Amazon's entry into health care looms. The company already sells some supplies to doctors and dentists through its Amazon Business division. Henry Schein says spinning off and merging the animal health business will allow it to focus more on the dental and medical supply businesses.

"Some people felt this (deal) is perhaps to fend off online retailers, but it has absolutely nothing to do with that. This is about bringing two great companies together where (veterinary) practitioners will be more successful," Henry Schein CEO Stanley Bergman said in an interview with CNBC.

Stanley Bergman, CEO, Henry Schein
Scott Mlyn | CNBC
Stanley Bergman, CEO, Henry Schein

Henry Schein's stock has slid nearly 18 percent over the past year. It gained nearly 7 percent Monday.

Its animal health business posted $3.48 billion in revenue last year. Within three years, the deal is expected to accelerate revenue growth as the merged company adopts the Vets First Choice platform across the Henry Schein customer base, potentially adding more than $100 million in operating income.

The merger gives 8-year-old Vets First Choice the chance to become public without going through an initial public offering. The Portland, Maine-based company raised $223 million from a group of investment firms last year.

At the time, founder and CEO Ben Shaw said the money would help Vets First Choice expand globally. The combination with Henry Schein gives it an immediate opportunity for that.

"These are very sensitive, high-touch services — prescription management, inventory management, workflow of the business — that's crucial to day-to-day work," Shaw said. "To extend that globally is unique."

Shaw will become CEO of Vets First Corp. Henry Schein will nominate six board members and Vets First Choice will nominate five. Bergman will serve on the board while continuing to serve as Henry Schein's CEO.

"By combining forces with (Henry Schein Animal Health), we anticipate accelerating the introduction of new and enhanced programs, services, and technology to veterinary teams so they can deepen their focus on doing the great work of caring for the animals in our lives," Shaw said in a statement.

The deal is expected to close by the end of the year.