CVS buys Omnicare for $12.7B to expand senior care business

CVS Health (CVS) said Thursday that it has agreed to buy pharmacy services provider Omnicare (OCR) for about $12.7 billion, a move to expand its presence in the senior care market.

CVS will pay $98 per share in cash and assume $2.3 billion of Omnicare's debt.

Omnicare, the nation's largest provider of pharmaceutical services in nursing homes, has 160 locations in assisted living and long-term care facilities in 47 states in the U.S.

Shares of CVS, which operates the pharmacy chain, walk-in clinics and a pharmacy benefits manager unit, rose 2.4% to $103.69.

Omnicare rose 1.7% to $96.26.

The deal, which has been approved by the boards of both companies, is expected to close "near the end of 2015," CVS said.

"The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel," said CVS Health CEO Larry Merlo in a statement.

With Baby Boomers aging, the long-term care industry is estimated to grow rapidly in the coming years. By 2050, one-fifth of the total U.S. population will be 65 or older, up from 12% in 2000, according to Congressional Budget Office. And nearly all nursing homes and residential care communities offer on-site pharmaceutical services. In the first quarter, Omnicare's sales rose 5.6% to $1.7 billion.

The deal will dramatically add to CVS' revenue next year, and integrating the companies also will lead to savings in purchasing and other operations, CVS said. It will contribute about 20 cents to CVS' earnings per share next year, after excluding one-time transaction-related costs.

To complete the deal, CVS said it has secured a $13 billion short-term loan from Barclays and will eventually issue a debt or get term loans before the deal closes.

As pharmaceutical drug costs rise, employers and insurance companies have been looking to seize more control, resulting in a consolidation in the pharmaceutical benefits business. Pharmaceutical benefits managers, which typically work for employers or insurance payers, handle the logistics and paperwork involved distributing and paying for drugs and leverage their buying power to gain favorable pricing from manufacturers.

In February, Rite Aid, a competitor of CVS, made a similar acquisition by paying about $2 billion for Envision Pharmaceutical Services, better known as EnvisionRx.

In late March, UnitedHealth Group struck a deal to buy Catamaran, one of the largest U.S. pharmacy benefit managers, for $12.8 billion. It will be integrated into UnitedHealth's unit that targets the same market, OptumRx.