Don’t CVET Your Neighbor’s Stock- Henry Schein Completes Spinoff Of Covetrus

Why is Henry Schein(HSIC) stock down sharply today? What is this CVET stock suddenly in my portfolio?

We’ve been talking about it a lot, but Covetrus(CVET) is finally here.  After the market closed yesterday, Henry Schein completed its spinoff of Covetrus, distributing Covetrus stock to shareholders. Covetrus immediately merged with Vets First Choice in a Reverse Morris Trust transaction. Covetrus stock finished its last day of when-issued trading at $43.05.

Henry Schein shareholders received 0.4 shares of Covetrus stock for every share of Henry Schein stock that they held as of January 17.  Henry Schein announced its completion of the transaction, noting that it received $1.1 billion in cash, tax free, which it would be using to pay down debt.

The debt repayment will generate additional debt capacity for Henry Schein, which could be used for general corporate purposes, including share repurchases and mergers and acquisitions.

Henry Schein described its strategy from moving beyond being just a supplier of products to being a supplier of solutions.

While Henry Schein historically has been associated with the distribution of health care products, the Company will increasingly focus on four critical solutions as part of its high-touch, full-service value proposition: business solutions, including equipment financing services, practice analysis, practice brokering, recruitment services, revenue cycle management, leasing advice, compliance support, and more; clinical solutions, such as a wide range of implants, orthodontic devices, and bone regeneration materials, as well as telemedicine and clinical decision support services; technology solutions, led by Henry Schein One, the joint venture behind the award-winning Dentrix practice management software, as well as a broad range of digital equipment, technical service, and on-site support; and supply chain solutions, including a best-in-class fulfillment system for product delivery, as well as inventory management systems and customized supply-chain solutions for integrated delivery networks and large group practices.

“Henry Schein is so much more than a supplier of products,” Mr. Bergman said. “We provide the solutions health care professionals rely on to operate more efficiently and provide patients with the very best care. We intend to grow our dental and medical businesses through continued investments in the products, technologies, services, and support that comprise our unique set of health care solutions. We have an almost nine-decade history of successful reinvention, including 23 years as a public company, delivering consistent results as markets change. We intend to build on our record of success in the years ahead.”

Covetrus also “celebrates its launch as [a] newly formed public company.”

Today, Covetrus celebrates the combination of two unique and complementary businesses – Henry Schein Animal Health and Vets First Choice – as a newly formed company. Covetrus will leverage decades-long experience, insights, technology and global scale to empower veterinarians to enhance clinical and practice health. This means providing veterinary practices with a more comprehensive set of integrated services and technology solutions, tools to strengthen client relationships and grow their practice, while driving improved workflow and cost-effectiveness through efficient delivery of next-generation solutions.

Following the completion of the merger on February 7, today’s announcement marks the launch of Covetrus, which begins regular-way trading on the Nasdaq Stock Market under the symbol CVET this morning.

President and Chief Executive Officer Benjamin Shaw, joined by members of the company’s management team, will celebrate the company’s first day of trading by visiting the exchange and ringing the opening bell at Nasdaq.

“Today marks an important new chapter in the world of veterinary medicine, as we launch Covetrus as a new company listed on Nasdaq,” said Mr. Shaw. “We look forward to strengthening our customer relationships and expanding our veterinary practice partnerships worldwide as we bring more comprehensive and powerful solutions to market to meet their evolving needs and improve health and financial outcomes.”

Henry Schein, with a newly spruced-up balance sheet, looks poised to build on decades of steady growth as it moves to higher margin businesses. Covetrus, while laden with debt, gives a proven management team a public vehicle to scale in the growing veterinary market. We think both companies bear further watching.

Disclosure: The author holds no position in any stock mentioned