Drug wholesaler McKesson Corp (MCK.N) struck a deal to buy medical products distributor PSS World Medical PSSI.O for $1.46 billion to bolster its surgical devices supply business.
McKesson will pay $29.00 per share in cash, a 34 percent premium to PSS World Medical's stock close on Wednesday.
"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," ISI Group analyst Ross Muken said.
In 2000, Jacksonville, Florida-based PSS had drawn interest from Fisher Scientific, now a unit of Thermo Fisher Scientific (TMO.N), which was willing to pay about $840 million, or $11.86 per PSS share.
The deal fell through after both companies said it was not in the best interest of their shareholders.
PSS had net sales of about $2.10 billion in fiscal year 2012 ended March 30.
McKesson, which supplies medicines to retail drugstore chains such as CVS Caremark (CVS.N) and Rite Aid Corporation (RAD.N), said it expects to realize synergies of more than $100 million by the fourth year following closing of the deal.
McKesson reported cash and cash equivalents of about $2.83 billion at September 30.
The total transaction, including the assumption of PSS World Medical's outstanding debt, is valued at approximately $2.1 billion.
McKesson also reported a 35 percent increase in its July-September net income, handily beating analysts' expectations.
Second-quarter net income rose to $401 million, or $1.67 per share, from $296 million, or $1.18 per share, a year earlier.
Excluding a pre-tax, non-cash charge, earnings were $1.92 per share.
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.
(Reporting by Zeba Siddiqui and Adithya Venkatesan; Editing by Supriya Kurane)