* Sees synergies in excess of $100 mln from deal
* McKesson reports Q2 adj EPS $1.92 vs est $1.78
* Q2 rev $29.9 bln vs est $30.91 bln
By Zeba Siddiqui and Adithya Venkatesan
Oct 25 (Reuters) - U.S. drug wholesaler McKesson Corp struck a deal to buy medical products distributor PSS World Medical for $1.46 billion to boost scale and margins in its surgical devices supply business as medical procedure volumes fall.
Patients have been reluctant to spend on elective procedures in a weak economy, hurting sales at the companies making surgical devices, as well at the distributors, such as McKesson, that supply them.
Analysts termed the deal a good buy, despite PSS's not-so-impressive financial performance over the last five quarters.
"This is, I think, a happy marriage for both sides, in that you're bringing the strong operational expertise of McKesson, (and) you're bringing the pretty good customer and sales network of PSS (together)," ISI Group analyst Ross Muken said.
The offer of $29.00 per share in cash, is 34 percent higher than PSS's stock close on Wednesday.
PSS shares, which have lost more than 12 percent of their value this year, were trading at $28.66 Thursday afternoon on the Nasdaq, while McKesson shares were up 4 percent at $93.34 on the New York Stock Exchange.
"It is not a particularly expensive deal. (It) allows McKesson to help sustain margins in the medical distribution market and overall, I think it is a good use of shareholder capital," Muken said.
Including the assumption of PSS debt, McKesson valued the deal at about $2.1 billion.
The acquisition could add between 15 and 30 cents per share to McKesson's earnings in 2014, J.P. Morgan analyst Lisa Gill estimated in a note to clients.
San Francisco-based McKesson, which counts drugstore chains CVS Caremark and Rite Aid Corporation among its customers, said it expects to realize annual synergies of more than $100 million by the fourth year following closing of the deal.
McKesson has historically had a strong capital position, which it has utilized to strengthen its distribution business, making as many as eight acquisitions since January 2011.
McKesson reported cash and cash equivalents of about $2.83 billion as of Sept. 30.
Muken said Jacksonville, Florida-based PSS was the most likely asset to be in play within the U.S. drug distribution industry, adding that he does not expect any more consolidation in the sector at this stage.
Fisher Scientific, now a unit of Thermo Fisher Scientific had offered to buy PSS in 2000 for about $840 million. The deal fell apart as both companies determined that it would not be in the best interest of their shareholders.
McKesson on Thursday also reported a 35 percent increase in its July-September net income to $401 million, handily beating analysts' expectations.
Excluding a pre-tax, non-cash charge, it earned $1.92 per share in the quarter. Revenue fell by 1 percent to $29.9 billion.
Analysts on average expected McKesson to report a profit of $1.78 per share, on revenue of $30.91 billion, according to Thomson Reuters I/B/E/S.
The company tightened its fiscal 2013 earnings forecast range and now expects a profit, excluding items, of between $7.15 and $7.35 per share, against its earlier expectation of $7.05 to $7.35 per share.
Peter J. Solomon and law firm Simpson Thacher & Bartlett served as McKesson's financial and legal advisers. Goldman Sachs Group, Credit Suisse Group <C SGN.VX> a nd law firm Alston and Bird advised PSS World on the transaction.