Yahoo Finance CVS Health Grows in Specialty Care, Buys Omnicare for $12.7B
CVS Health Corp. CVS has completed the acquisition of Ohio-based pharmacy services provider, Omnicare, for $12.7 billion, including a debt of $2.3 billion, well ahead of time. The buyout reflects the company’s foray into a new pharmacy distribution channel – the long-term specialty care market.
CVS Health expects this colossal takeover, which was announced in May 2015, to add 20 cents to its adjusted EPS (excluding integration and any one-time transaction cost) for full year 2016. The benefit is projected to increase further in the years ahead. Management expects, post-acquisition, CVS Health will continue to enjoy a solid balance sheet, which coupled with a strong free cash flow, will allow it to reach its targeted leverage ratio of 2.7 times adjusted debt-to-EBITDA.
The deal is well-timed given that most pharmacy benefit managers (PBM) have been lately collaborating with pharmacy chain operators to capture a larger share of the ever-expanding pharmacy services market.
With patients, insurance companies and drug manufacturers looking to manage costs amid inflating drug prices, demand for pharmacy services is the current rage. In such a scenario, consolidation of pharmacy service providers appears an apt strategy that is rapidly being adopted by several such firms eager to ride high on the demand trend.
Omnicare, with its current market value of $9.2 billion, specializes in managing complex pharmaceutical care in the U.S. Apart from providing quality drugs at cost-effective rates, the company also caters to senior-living facilities attending to their residents’ medications.
With the growing importance of long-term specialty care as a key segment within the health care sector, we believe the addition of Omnicare will strengthen CVS Health’s foothold in this niche. The buyout will boost CVS Health’s prescription drug retail business through an extended presence in the growing specialty pharmacy care market.
As the second largest drugstore operator in the country, CVS Health expects this acquisition to help it expand its customer base by reaching out to a broader population of seniors and chronic care patients across the care market.
Big deals observed of late in the industry include UnitedHealth Group’s UNH planned $12.8 billion acquisition of Catamaran Corp., which was announced in Mar 2015. In addition, in Jun 2015, retail drugstore chain Rite Aid acquired PBM Envision Pharmaceutical Services for about $2 billion.
Currently, CVS Health retains a Zacks Rank #3 (Hold).
Some better-ranked stocks in the retail drug store space are Walgreens Boots Alliance, Inc. WBA and Diplomat Pharmacy, Inc. DPLO. All the three stocks carry a Zacks Rank #2 (Buy).
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