Coloplast Divests Sterling Medical Services, Signs Supply Agreement with U.S. Health Care Distributor

Coloplast has entered a definitive agreement to divest Sterling Medical Services LLC (Sterling), a U.S.-based product distributor and service provider to the home health care and payer segment. McKesson Corp., a U.S. health care services company and pharmaceutical distributor, will acquire the company.

The divestment is expected to close around April 1, subject to customary conditions. Terms of the agreement are not disclosed.

The divestment of Sterling will cause a slight, upward adjustment of the profit margin from around 16 percent to just over 16 percent before nonrecurring income. Coloplast's long-term objectives remain at doubling economic profit (EP) every five years toward 2012 based on the 2004-05 figures.

Coloplast acquired an initial shareholding in Sterling in 1998 and took full control of the company in October 2001. In the period since 2001, Coloplast has primarily strengthened its U.S. market position by building demand through hospitals. Coloplast has chosen not to take part in a consolidation taking place in the U.S. distribution of the home care market. Apart from minor distribution activity, Sterling primarily offers formulary and utilization management to payers. As a consequence, Sterling no longer fits well with Coloplast's business model.

Coloplast and McKesson have signed a long-term supply agreement. Under this agreement, McKesson will distribute Coloplast's ostomy and continence care products in the United States, which will increase the availability of these products in the U.S. market.

In 2005, McKesson Corp. reported revenue of $80.5 billion in the market for health care products and services, mainly in the United States. The acquisition of Sterling will strengthen McKesson's position in the U.S. home care market.

This article originally appeared in the February 2006 issue of HME Business.

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