Business Acquisitions

Vets First Choice

On February 7, 2019, we acquired Vets First Choice. See Note 1 - Business Overview and Significant Accounting Policies for further information. During the three and six months ended June 30, 2019, we recorded a measurement period adjustment, which was made to reflect the facts and circumstances in existence as of the acquisition date. This adjustment reflects a reduction to the purchase price of $30 million, offset by a corresponding decrease to goodwill. This measurement period adjustment relates to the expected cancellation of approximately 700,000 Covetrus shares issued to Vets First Choice shareholders that are held in escrow. The estimated consideration and fair value in the tables below have been updated to reflect this measurement period adjustment.

The acquisition date fair value of the consideration transferred consisted of the following:



(In millions, except per share data)	Estimated Consideration
Total Covetrus shares issued to Vets First Choice shareholders ^(a)	39,041,070
Per share price (in actuals)^(b)	$	43.05
Total fair value of shares issued to Vets First Choice shareholders	$	1,681
Fair value of Vets First Choice replacement stock option awards attributable to pre-acquisition service	62
Vets First Choice debt repaid at close	24
Vets First Choice expenses paid at close	18
Less: Vets First Choice cash used to fund transaction	(9		)
Total consideration	$	1,776

(a) Amount reflects shares expected to be canceled
(b) Closing price on February 7, 2019, Covetrus shares trading on a when-issued basis (Nasdaq: CVET)

The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed:



(In millions)	Estimated Fair Value
Fair value of net assets acquired	$	14
Goodwill	1,328
Intangible assets	545
Deferred tax liabilities	(111		)
Total acquisition cost	$	1,776

The size of the Acquisition necessitates use of the one year measurement period to adequately analyze all the factors used in establishing the asset and liability fair values as of the acquisition date, including, but not limited to intangible assets and deferred tax liabilities.

We determined the estimated fair value of the identifiable intangible assets after review and consideration of relevant information including discounted cash flow analysis, market data, and management’s estimates. We engaged an independent valuation firm to assist in determining the fair value of the acquired intangible assets. The value attributed to the other identifiable intangible assets included $20 million in trademarks and trade names, $50 million in product formulas, $125 million in customer relationships, and $350 million in developed technologies. These intangible assets are being amortized over a weighted average period of seven years.

The goodwill from this transaction arose as a result of our expected ability to leverage existing and new marketing opportunities across a larger revenue base. The goodwill from this transaction is not deductible for tax purposes.

The following unaudited pro forma financial information presents the results of operations for the three and six months ended June 30, 2019 and 2018, as if the Acquisition had occurred as of December 31, 2017. The unaudited pro forma results reflect certain adjustments for items that are not expected to have a continuing impact, such as adjustments for transaction costs incurred, management fees, and purchase accounting. The information presented below has been prepared for comparative purposes only and does not purport to be indicative of either future results of operations or the results of operations that would have actually occurred had the Acquisition been consummated on December 31, 2017:



	Three Months Ended June 30,						Six Months Ended June 30,
(In millions, except per share data)	2019			2018			2019			2018
Net sales	$	1,009		$	1,056		$	1,974		$	2,048
Net loss	(10		)	(7		)	(33		)	(20		)
Net loss attributable to Covetrus	(10		)	(7		)	(33		)	(20		)
Loss per common share:
Basic	$	(0.09	)	$	(0.10	)	$	(0.32	)	$	(0.28	)
Diluted	$	(0.09	)	$	(0.10	)	$	(0.32	)	$	(0.28	)

Maravet

On April 24, 2019, we acquired the remaining 50% equity interest in Maravet, an animal health distributor in Romania, for $26 million, which is included in Accrued expenses-other within the consolidated balance sheet. We recognized a gain of $11 million on our previously held equity investment and have preliminarily ascribed $26 million to goodwill and $22 million to identifiable intangible assets based upon estimated fair values at the acquisition date. The purchase price allocation is preliminary and subject to change during the measurement period. The goodwill from this transaction is not deductible for tax purposes.