Cardinal Health, Inc. (CAH) Accused of Misleading Shareholders
According to the class action complaint against the company for alleged violations of the Securities Exchange Act of 1934, in March 2015, Cardinal Health, Inc. announced its plan to acquire Cordis, a medical device manufacturer, touting that the acquisition would allow Cardinal to enter into the higher-margin cardiovascular market and provide it with a global platform for growth. Following the acquisition, Cardinal continuously assured that Cordis was performing as expected and integrating successfully. Despite the optimistic assurances, Cordis’ operations experienced a number of deficiencies with its existing global supply chain and inventory control systems, which were antiquated and ineffective, resulting in excessive amounts of unsellable cardiovascular product inventories. Cordis’ deficiencies came to light in August 2017, when Cardinal had to report weak earnings for its fourth quarter and lowered its earnings guidance for fiscal year 2018 due to “higher-than-planned write-offs for excess inventory.” On this news, Cardinal’s stock fell over 8%. Then, on May 3, 2018, Cardinal disclosed lower-than-expected earnings due to Cordis’ “disappointing performance.”