Cardinal Health

(CAH) - Get Report

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.

Ransom, for one, found it odd that Cardinal would follow up just a few days later with news of a major acquisition.

"I'm surprised they're doing this deal in the teeth of an investigation" that's focused on acquisitions, he told

TheStreet.com

on Wednesday. "They can't put their life on hold ... but that's a fairly aggressive posture."

Still, Ransom fielded only reassurance when he raised the same concerns during Wednesday's conference call with management.

"We just view

the acquisition as completely separate from this investigation," Walter said. "This is business as usual

at Cardinal."

And the company's stock remained stable. Shares of Cardinal inched up 12 cents to $67.64 halfway through Wednesday's session.

Meanwhile, Alaris investors continued to cash in. The stock, which had already doubled over the past year, jumped another 18% to $22.23 on news of the pending acquisition.

Alaris CEO David Schlotterbeck, who will join Cardinal's senior management team, predicted even brighter days ahead for his company. He said Alaris has already had "great success competing against much larger companies ... on a global basis." But he now expects Alaris to grow its market share at double -- or even triple -- its planned clip under the Cardinal umbrella.

Already, the companies noted on Wednesday, Alaris is ranked as either the No. 1 or No. 2 supplier in most of the countries where it operates. Moreover, Alaris -- which derives 30% of its revenue from outside the U.S. -- should now pave the way for Cardinal to aggressively expand its international presence.

"Markets outside the U.S., especially Western Europe, represent a major growth opportunity for Cardinal Health," Cardinal President George Fotiades said. "We expect Alaris' experienced direct sales and service organization will become an important channel for many of our products in these regions."

Walter, more simply, declared Alaris a "terrific fit" with Cardinal.

Cardinal plans to finance the transaction, which totals $2 billion including the assumption of debt, with short-term and medium-term debt and up to $1 billion in cash. The company -- which expects cash flow to surge because of working capital reductions in the industry -- reminded investors on Wednesday that it expects to generate $5 billion in cash annually over the next three years.

Banc of America Securities, which recommends buying Cardinal's stock, actually raised its price target on the stock to $80 this month because of the company's "impressive" cash flow.

Walter followed up on Wednesday by assuring investors: "We can handle this transaction."

Looking ahead, Cardinal expects to realize immediate synergies from the transaction. The company said on Wednesday that the merger will be modestly accretive next year and "meaningfully" accretive by 2007, when the company expects to begin collecting up to $100 million annually from the deal.

Even Ransom feels the acquisition's price could prove fair if Cardinal does, in fact, capture the synergy it expects. But he still questions the mindset that has triggered such expensive acquisitions in the first place.

"They are very EPS-focused. They are very perception-focused," said Ransom, who nevertheless still has a buy recommendation on the stock. "This is a classic 1990s company."