Cardinal Wings It in Alaris Deal

Cardinal Health (CAH) is coughing up another wad of dough.

This time, the giant health care company is paying $1.6 billion for a global supplier of intravenous medical products. Cardinal compared its pending acquisition of Alaris Medical Systems (AMI) to "winning the Triple Crown" on Wednesday. The company said that three key factors -- strategic fit, outstanding management and shareholder value -- make Alaris an attractive target.

Offering a scorecard for analysts on Wednesday, Cardinal CEO Robert Walter gave the Cardinal-Alaris combination "a solid A with, I believe, appropriate humility."

But some withheld their cheers. Raymond James analyst John Ransom felt that Cardinal was paying a high price to gobble up another company -- and could risk unpleasant side effects in the process.

Cardinal has offered $22.35, an 18% premium over Tuesday's closing price, for the IV safety company. Ransom says the price tag translates into a "fairly steep multiple" for the company and further continues Cardinal's "pattern of paying big prices" for acquisitions. Perhaps more worrisome, he added, Cardinal is pursuing its latest deal at a time when the Securities and Exchange Commission has just deepened a probe of the company's acquisition-related accounting.

Ransom says that Cardinal has been "justifiably criticized for ... a tendency to stretch [generally accepted accounting principles] to the breaking point."

Three days ago -- in the middle of a Sunday afternoon -- Cardinal issued a press release offering fresh details about a formal SEC probe, announced earlier in the month, and an internal investigation being undertaken by the company's own audit committee. Cardinal once again reminded investors that the SEC investigation is no longer limited to its treatment of settlements with vitamin companies (considered immaterial by most). The company further clarified that its own reviewers are now examining the "adjustment of certain reserves and their impact on quarterly earnings." Moreover, the company indicated that it could possibly wind up changing its disclosure procedures and controls going forward.