Under its strategy to expand into assisted-living prescriptions and long-term care facilities, CVS Health has taken over Omnicare, which is known for its drugs for the elderly people, whose numbers are currently on a rise in the US.
The Rhode island-based CVS Health (CVS, Financial) has bought Ohio based Omnicare (OCR, Financial) for $10.4 billion in an effort to spread into the market catering to senior patients. The deal, which is yet to get regulatory approval, is slated to close by end of this year.
About the deal
The 52-year-old CVS Health, which was previously known as Consumer Value Stores, is the second-largest pharmacy chain in the U.S. with 7,600 stores and also is the second-largest based on total prescription revenue. On the other hand, Omnicare is a Fortune 500 company that operates as a provider of pharmaceuticals, related consulting and data management services.
The deal by CVS will offer $98 per share equaling a premium of 4% to Omnicare’s closing price before the buyout. Announcement of the takeover led to a rise of 1.4% to $96 in the shares of Omnicare while shares of CVS shot up 2% at $103. In totality, the deal will be worth $12.7 billion, which will be inclusive of a debt of $2.3 billion as well of Omnicare.
While CVS approached Barclays (BCS, Financial) and Evercore (EVR, Financial) for financial advice, Bank of America (BAC, Financial) Merrill Lynch (MER, Financial) and Centerview Partners did the job for Omnicare. Legal advisors for CVS and Omnicare were Sullivan & Cromwell LLP and White & Case LLP respectively.
Advantages to CVS
As is clear from the outlook, CVS is going to leverage from Omnicare’s market serving senior patients. Also, the company is expecting an addition of 20 cents to adjusted earnings per share in 2016 as a result of benefits through the deal.
Also, the company hopes to expand into specialty pharmacy business, which is on a rise in the country. Omnicare, which reports more than 25% of its total revenue through high price drugs particularly, aimed at small patient populations is now going to benefit CVS in turn as the company plans to market, distribute as well as obtain reimbursement for these drugs. For the year 2014, Omnicare posted revenue of $1.67 billion for the specialty care segment, which was a raise of 20% from the previous year. Another segment, which is reaping good profits for Omnicare, is the company’s long-term care group that added 2.6% sales or $4.75 billion. CVS after taking over Omnicare expects growth in its revenue as well year over year.
Series of similar deals in U.S.
The tie-in between CVS and Omnicare is not the first one. Considering the multifold advantages, many other companies have also entered into a merger in the recent past in the US with CVS-Omnicare as the latest in the area of Pharmacy benefit managers or PBMs. These are the negotiators for medicines on behalf of employers and health plans. While putting pressure on drugstores to avail discounted process for their clients and also compete for prescription business through mail orders plan.
Recently, an agreement was made on the takeover of Catamaran Corp. (CTRX, Financial), which is the fourth-largest PBM in the U.S. calculated as per prescriptions volume, by UnitedHealth Group Inc. (UNH, Financial) for around $12.8 billion in cash. The deal led to improved PBM business of UnitedHealth and also helped in appeasing employees and insurers who were worried about the increasing costs of cutting-edge drugs.
Another one was in February wherein Rite Aid Corp. (RAD, Financial) signed to buy Envision Pharmaceutical Services, a PBM, from TPG Investment firm for approximately $2 billion.
