Jan. 25 (Bloomberg) -- Cardinal Health Inc., the second- biggest U.S. pharmaceutical distributor, will sell its drug packaging unit to Blackstone Group LP for $3.3 billion.

The transaction will enable Cardinal to buy back shares and focus on its main business of shipping drugs to hospitals and pharmacies, the Dublin, Ohio-based company said today. Cardinal also said earnings more than doubled on a tax benefit from the transaction and on sales of more-profitable generic medicines. The stock jumped 3.4 percent.

The division, which makes and packages drugs, has been plagued by delays in production and in opening new plants, analysts said. The purchase expands health-care investments for New York-based Blackstone, which is raising the world's biggest buyout fund of $20 billion. Blackstone also increased its offer today for billionaire Sam Zell's Equity Office Properties Trust.

``It was a chronic underperformer,'' said John Kreger, an analyst with William Blair & Co. in Chicago, in a telephone interview. ``It never seemed to fit with Cardinal's culture and expertise. The biggest negative is you are selling what could have been one of the highest growth opportunities for the company.''

Cardinal's shares jumped by $2.47 to $72.42 at 4:01 p.m. in New York Stock Exchange composite trading. The stock is up 12 percent since Jan. 1.

Health-Care Play

Blackstone said it would work with existing management to increase growth and profitability. The division generated 2006 revenue of $2.8 billion, or 3.5 percent of Cardinal's total of $81 billion.

``We think it's a great way to play health care because of the high organic growth of the company and its market leadership position,'' said Blackstone senior managing director Chinh Chu in a telephone interview. Cardinal is the leader in 80 percent of its businesses, and health-care service revenue is growing as fast as 9 percent a year, Chu said.

Blackstone executives previously said they view health care as one of the industries best able to weather a recession because spending on drugs and medicines isn't discretionary. Last month Blackstone was part of a group that agreed to buy Biomet Inc., the maker of artificial hips and knees, for $10.9 billion.

Blackstone last year dropped plans to pursue a rival bid for the largest U.S. hospital chain, HCA Inc., because it would be too expensive. HCA agreed to a $33 billion buyout by a group including Bain Capital LLC and Kohlberg Kravis Roberts & Co.

Tamiflu, Advil

Cardinal said Nov. 30 that it would sell the operations, which develop, manufacture and package medications and other products.

The division employs about 10,000 people at more than 30 sites worldwide, including St. Petersburg, Florida; Albuquerque, New Mexico; Raleigh, North Carolina; and Brussels, Cardinal spokesman James Mazzola said. It won a contract in 2006 to make and package the influenza treatment Tamiflu for Roche Holding AG and also makes the painkiller Advil for Wyeth.

Cardinal closed a sterile-product plant that was part of the unit in Humacao, Puerto Rico, in 2005. The company recorded $7 million in costs to operate the plant during the quarter that ended June 30, 2005.

Cardinal's net income for the fiscal second quarter ended Dec. 31 doubled to $739.3 million, or $1.80 a share, from $304 million, or 70 cents, a year earlier, the company reported. Sales of generic medicines cut costs, and a $425 million tax gain on the sale of the drug-making and packaging division bolstered earnings, the company said.

Cardinal also announced it will buy closely-held SpecialtyScripts Pharmacy, based in Fall River, Massachusetts, for an undisclosed amount.

To contact the reporter on this story: John Lauerman in Boston at jlauerman@bloomberg.net; or Brett Cole in New York at coleb@bloomberg.net

Last Updated: January 25, 2007 16:08 EST