| Acquisitions and other investments | Acquisitions and other investments Summit acquisition On January 3, 2023, Village Practice Management Company, LLC (“VillageMD”), through its parent company, following an internal reorganization, completed the acquisition of WP CityMD TopCo (“Summit”), a leading provider of primary, specialty and urgent care in exchange, for $7.0 billion aggregate consideration, consisting of $4.85 billion of cash consideration paid, $2.05 billion in preferred units of VillageMD issued to Summit equity holders and $100 million of cash to be paid one year following closing. The cash consideration includes $87 million of cash paid to fund acquisition-related bonuses to Summit Health-CityMD employees which is recognized as compensation expense of the Company. In addition, VillageMD paid off approximately $1.9 billion in net debt of Summit. In connection with the amended Agreement and Plan of Merger, and in order to finance the acquisition, the Company and Cigna Health & Life Insurance Company (“Cigna”) acquired preferred units of VillageMD in exchange for $1.75 billion and $2.5 billion in aggregate consideration, respectively. Following the Summit acquisition, the Company remains the largest and consolidating equity holder of VillageMD with ownership of approximately 53% of the outstanding equity interests on a fully diluted basis. Further, the Company entered into a credit agreement with VillageMD pursuant to which the Company provided VillageMD senior secured credit facilities in the aggregate amount of $2.25 billion, consisting of (i) a senior secured term loan facility in an aggregate original principal amount of $1.75 billion to support the acquisition of Summit; and (ii) a senior secured revolving credit facility in an aggregate original committed amount of $500 million available for general corporate purposes. In connection with the issuance of the senior secured credit facilities, the Company received a $220 million credit for certain fees payable by VillageMD in the form of preferred units of VillageMD. The intercompany facilities eliminate in consolidation. The Company accounted for this acquisition as a business combination resulting in consolidation of Summit within the U.S. Healthcare segment in its financial statements. As of May 31, 2023, the Company had not completed the analysis to assign fair values to all tangible and intangible assets acquired and liabilities assumed. As such, the preliminary purchase price allocation will be subject to further refinement and may change. These changes may relate to finalization of the fair value of the purchase consideration and the allocation of purchase consideration to all tangible and intangible assets acquired and identified and liabilities assumed. In the three months ended May 31, 2023, the Company recorded certain measurement period adjustments, based on additional information, primarily to certain assets and liabilities, resulting in a decrease to goodwill of $71 million. The following table summarizes the consideration for the acquisition and the amounts of identified assets acquired and liabilities assumed at the date of the transaction (in millions): Purchase price allocation: Cash consideration 1 $ 4,778 Deferred consideration 100 Summit debt paid at closing 1,963 Fair value of equity consideration 1,971 Fair value of non-controlling interests 13 Total $ 8,825 Identifiable assets acquired and liabilities assumed: Cash and cash equivalents $ 71 Accounts receivable, net 371 Property, plant and equipment 607 Intangible assets 2 3,359 Operating lease right-of-use assets 761 Other assets 174 Operating lease obligations (777) Deferred tax liability (918) Other liabilities (444) Total identifiable net assets $ 3,203 Goodwill $ 5,622 1. Cash considerations excludes $87 million of cash paid to fund acquisition-related bonuses to Summit employees which is recognized as compensation expense of the Company. 2. Intangibles acquired include provider networks and trade names with fair values of $1.9 billion and $1.5 billion, respectively. Estimated useful lives are 15 years and 11 to 15 years, respectively. The goodwill represents anticipated future growth and expansion opportunities into new healthcare offerings and new markets. Supplemental pro forma information - Summit The following table represents unaudited supplemental pro forma consolidated sales for the three and nine months ended May 31, 2023 and 2022, as if the acquisition of Summit had occurred at the beginning of each period. The unaudited pro forma information has been prepared for comparative purposes only and is not intended to be indicative of what the Company's results would have been had the acquisition occurred at the beginning of each period presented or results which may occur in the future. Three months ended May 31, Nine months ended May 31, (Unaudited, in millions) 2023 2022 2023 2022 Sales $ 35,415 $ 33,303 $ 104,630 $ 102,228 Actual sales of Summit, from the acquisition date, for the three and nine months ended May 31, 2023, included in the Consolidated Condensed Statements of Earnings are as follows (in millions): Three months ended May 31, Nine months ended May 31, (Unaudited, in millions) 2023 2023 Sales $ 730 $ 1,193 Pro forma net earnings of the Company, assuming the acquisition had occurred at the beginning of each period presented, would not be materially different from the results reported. VillageMD acquisition On November 24, 2021, the Company completed the acquisition of VillageMD, a leading national provider of value-based primary care services. Pursuant to the terms and subject to the conditions set forth in the Unit Purchase Agreement, the Company purchased additional outstanding equity interests of VillageMD, increasing the Company’s total beneficial ownership in VillageMD’s outstanding equity interests from approximately 30% to approximately 63%, on a fully diluted basis, for a purchase price of $5.2 billion. The total purchase price was comprised of cash consideration of $4.0 billion and a promissory note of $1.2 billion. The cash consideration of $4.0 billion consisted of $2.9 billion paid to existing shareholders, including $1.9 billion paid to existing shareholders as part of the fully subscribed tender offer concluded on December 28, 2021, and $1.1 billion paid in exchange for new preferred units issued by VillageMD. Subject to notice being served, the Company had an option to prepay, and VillageMD had an option to require redemption of, the promissory note at any time. The promissory note was eliminated in consolidation within the Consolidated Condensed Balance Sheet as of August 31, 2022. The promissory note was paid in January 2023 prior to the Summit acquisition. The Company accounted for this acquisition as a business combination resulting in consolidation of VillageMD within the U.S. Healthcare segment in its financial statements. A non-controlling interest was recognized at fair value. As a result of this acquisition, in the three months ended November 30, 2021, the Company recognized a pre-tax gain in Other income, net in the Consolidated Condensed Statements of Earnings of $1,597 million related to the fair valuation of the Company’s previously held minority equity interest. The Company also recorded a pre-tax gain of $577 million in Other income, net in the Consolidated Condensed Statements of Earnings related to the conversion to equity of the Company’s previously held investment in convertible debt securities of VillageMD, reclassified from within Accumulated other comprehensive loss in the Consolidated Condensed Balance Sheets. A majority of the gains did not generate a tax expense. In the three months ended November 30, 2022, the Company completed the purchase price allocation and recorded certain deferred income tax related measurement period adjustments based on additional information, resulting in an increase to goodwill of $125 million. The following table summarizes the consideration for the acquisition and the amounts of identified assets acquired and liabilities assumed at the date of the transaction (in millions): Purchase price allocation: Total purchase price $ 5,200 Less: purchase price for issuance of new preferred units at fair value 1 (2,300) Net consideration 2,900 Fair value of share-based compensation awards attributable to pre-combination services 2 683 Fair value of previously held equity and debt 3,211 Fair value of non-controlling interests 3,257 Total $ 10,051 Identifiable assets acquired and liabilities assumed: Tangible assets 1 $ 634 Intangible assets 3 1,621 Liabilities (370) Total identifiable net assets $ 1,885 Goodwill $ 8,166 1. Comprised of cash consideration of $1.1 billion and a promissory note of $1.2 billion. This consideration was provided in exchange for the issuance of new preferred units by VillageMD. VillageMD’s tangible assets acquired exclude this $1.1 billion of cash and $1.2 billion promissory note receivable. 2. Primarily related to vested share-based compensation awards. 3. Intangibles acquired include primary care provider network, trade names and developed technology, with a fair value of $1.2 billion, $295 million and $76 million, respectively. Estimated useful lives are 15, 13 and 5 years, respectively. The goodwill represents anticipated future growth and expansion opportunities into new markets. Shields acquisition On October 29, 2021, the Company completed the acquisition of Shields Health Solutions Parent, LLC (“Shields”), a specialty pharmacy integrator and accelerator for hospitals. Pursuant to the terms and subject to the conditions set forth in the Securities Purchase Agreement, the Company purchased additional outstanding equity interests of Shields, increasing the Company’s total beneficial ownership in Shields’ outstanding equity interests from 25% to approximately 70%, for cash consideration of $969 million. The Company accounted for this acquisition as a business combination resulting in consolidation of Shields within the U.S. Healthcare segment in its financial statements. A non-controlling interest was recognized at fair value. Under the terms of the transaction agreements, the Company had an option to acquire the remaining equity interests of Shields in the future. Shields’ other equity holders also had an option to require the Company to purchase the remaining equity interests. Considering the contractual terms related to the non-controlling interests, it was classified as redeemable non-controlling interests in the Consolidated Condensed Balance Sheets upon acquisition. As a result of this acquisition, in the three months ended November 30, 2021, the Company remeasured its previously held minority equity interest in Shields at fair value resulting in a pre-tax gain of $402 million recognized in Other income, net in the Consolidated Condensed Statements of Earnings. A majority of the gain did not generate a tax expense. In the three months ended November 30, 2022, the Company completed the purchase price allocation and recorded certain deferred income tax related measurement period adjustments based on additional information, resulting in an increase to goodwill of $72 million. The following table summarizes the consideration for the acquisition and the amounts of identified assets acquired and liabilities assumed at the date of the transaction (in millions): Purchase price allocation: Cash consideration $ 969 Fair value of share-based compensation awards attributable to pre-combination services 13 Fair value of previously held equity interests 502 Fair value of non-controlling interests 589 Total $ 2,074 Identifiable assets acquired and liabilities assumed: Tangible assets $ 84 Intangible assets 1 1,060 Liabilities (600) Total identifiable net assets $ 544 Goodwill $ 1,529 1. Intangibles acquired include customer relationships, trade names and developed technology, with a fair value of $896 million, $47 million and $117 million, respectively. Estimated useful lives are 13, 13 and 5 years, respectively. The goodwill represents anticipated future growth and expansion opportunities into new healthcare offerings. On December 28, 2022 the Company acquired the remaining 30% equity interest in Shields for $1.4 billion of cash consideration. CareCentrix acquisition On August 31, 2022, the Company completed the acquisition of CCX Next, LLC (“CareCentrix”). Pursuant to the terms and subject to the conditions set forth in the Membership Interest Purchase Agreement, the Company acquired approximately 55% controlling equity interest in CareCentrix, a leading player in the post-acute and home care management sectors, for cash consideration of $339 million. The cash consideration includes $12 million paid to employees, which was recognized as compensation expense by the Company. The Company accounted for this acquisition as a business combination resulting in consolidation of CareCentrix within the U.S. Healthcare segment in its financial statements. A non-controlling interest was recognized at fair value. Under the terms of the transaction agreements, the Company had an option to acquire the remaining equity interests of CareCentrix in the future. CareCentrix’s other equity holders also had an option to require the Company to purchase the remaining equity interests. Considering the contractual terms related to the non-controlling interests, it was classified as redeemable non-controlling interests in the Consolidated Condensed Balance Sheets. As of May 31, 2023, the Company completed the purchase price allocation. The following table summarizes the consideration for the acquisition and the amounts of identified assets acquired and liabilities assumed at the date of the transaction (in millions): Purchase price allocation: Cash consideration 1 $ 327 Contingent consideration 4 Fair value of share-based compensation awards attributable to pre-combination services 66 Fair value of non-controlling interests 217 Total $ 614 Identifiable assets acquired and liabilities assumed: Tangible assets $ 358 Intangible assets 2 426 Liabilities (680) Total identifiable net assets $ 104 Goodwill $ 509 1. Excludes $12 million of cash paid to employees, which was recognized as compensation expense by the Company. 2. Intangibles acquired include customer relationships, trade names and developed technology, with a fair value of $247 million, $93 million and $86 million, respectively. Estimated useful lives are 13, 13 and 5 years, respectively. The goodwill represents anticipated future growth and expansion opportunities into new healthcare offerings. On March 31, 2023, the Company acquired the remaining 45% equity interest in CareCentrix for $378 million of cash consideration. Supplemental pro forma information - VillageMD, Shields and CareCentrix The following table represents unaudited supplemental pro forma consolidated sales for the three and nine months ended May 31, 2022, as if the acquisitions of VillageMD, Shields and CareCentrix had occurred at the beginning of each period. The unaudited pro forma information has been prepared for comparative purposes only and is not intended to be indicative of what the Company's results would have been had the acquisitions occurred at the beginning of each period presented or results which may occur in the future. Three months ended May 31, Nine months ended May 31, (Unaudited, in millions) 2022 2022 Sales $ 32,910 $ 101,537 Actual sales of the acquired companies for the three and nine months ended May 31, 2022, included in the Consolidated Condensed Statements of Earnings are as follows (in millions): Three months ended May 31, Nine months ended May 31, 2022 2022 Sales $ 596 $ 1,173 Pro forma net earnings of the Company, assuming the acquisitions had occurred at the beginning of each period presented, would not be materially different from the results reported. Other acquisitions and investments On March 3, 2023, the Company completed the acquisition of Starling MSO Holdings, LLC (“Starling”), a leading primary care and multi-specialty group, for total consideration of $284 million. Total consideration includes $222 million of cash consideration and $62 million of VillageMD equity issued to Starling equity holders, including employees. VillageMD equity issued to employees will be recognized as compensation expense in the future. As a result of the acquisition, the Company recognized goodwill and intangible assets of $92 million and $126 million, respectively. The Company acquired certain prescription files and related pharmacy inventory primarily in the United States (“U.S.”) for the aggregate purchase price of $37 million and $127 million during the three and nine months ended May 31, 2023, respectively, and $36 million and $153 million during the three and nine months ended May 31, 2022, respectively. |
