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It’s hard to screw up in the drug distribution game. You’ve only got two competitors and you don’t have to spend heavily on developing those drugs. All you have to do is get them from point A to point B and watch the money roll in.

That’s why AmerisourceBergen shares are up nearly 80% over the past two years, and why McKesson Corp. shares have more than doubled. It’s also why Paul Singer wants to know why Cardinal Health shares… haven’t.

Cardinal Health has seen profitability drop in the past five years, leaving its stock price basically unchanged during that period….

Actually, Singer knows exactly why Cardinal can’t compete with its competitors, and he also probably knows exactly what he wants the company to do about it, or else.

A major gripe is that Cardinal has made poor investments and management missteps in a medical-supplies business that delivers such things as medical gowns. Investors would prefer that Cardinal focus on lucrative areas such as the delivery of specialty medications including cancer injections. Its medical-supplies business is currently struggling to turn a profit on about $16 billion a year of sales…. While Elliott’s intentions aren’t public yet, the activist is likely to push for a strategic review, possibly resulting in a recommendation to sell off the medical-supplies business to a private-equity investor.

One thing Singer almost certainly didn’t want Cardinal to do was this, and, well….

As an apparent response to Elliott’s pressure, Cardinal Health said its chief executive officer would be succeeded by Chief Financial Officer Jason Hollar…. The move was frustrating because the company has “underperformed its peers under the leadership of internally promoted CEOs, going back to at least 2008,” wrote Deutsche Bank analyst George Hill. Don Bilson at Gordon Haskett wrote that “swapping in a new CEO at the same time that a 5-10% holder is pushing for significant board representation is asking for trouble.”

Failing in an Oligopoly Takes Serious Mismanagement [WSJ]

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