M&A

CVS Buying Omnicare for Specialty Pharmacy Business

The $12.7 billion deal will boost the drug store chain's business of providing prescription services to senior-living facilties.
Katie Kuehner-HebertMay 21, 2015
CVS Buying Omnicare for Specialty Pharmacy Business

CVS is buying Omnicare to dramatically boost its prescription business for assisted-living and long-term care facilities.

The Woonsocket, R.I. company Thursday said that it would pay $98 per share in cash for Cincinnati-based Omnicare, for a total enterprise value of roughly $12.7 billion, which includes approximately $2.3 billion in debt. Omnicare shares were up 1.6% on the news, to $96.14 by 1 p.m. on Thursday. The stock was trading at a trailing 12-month price-to-earnings multiple of 50.21.

Buying Omnicare would also accelerate CVS’s presence in the rapidly growing specialty pharmacy business, the company said.

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“The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel,” president and chief executive Larry Merlo said in a press release. “It also creates new opportunities for us to extend our high-quality, innovative pharmacy programs to a broader population of seniors and chronic-care patients as they transition across the care continuum.”

The deal, approved by the boards of both companies, is expected to close near the end of the year. CVS expects to achieve “significant purchasing and revenue synergies as well as operating efficiencies.” The company projects the transaction will be about 20 cents accretive to adjusted earnings per share in 2016, excluding integration and any one-time costs.

Barclays is financing the deal with a $13 billion unsecured bridge loan, to be taken out with permanent financing in the form of senior notes, term loans, or both prior to the closing of the deal. CVS said that it was committed to returning to its targeted leverage ratio of 2.7 times adjusted debt-to-EBITDA. (As of March 31, CVS Health had total long-term debt of $11.7 billion, according to S&P Capital IQ data.)

According to an Associated Press article Thursday in the St. Louis Post-Dispatch, demand for pharmacy services for senior-living facilities is rising as patients, insurers, and companies look for ways to manage costs with drug prices on the rise, and pharmacy-services providers are combining to gain a bigger piece of the growing market.

“Specialty drugs are complex medications that treat certain forms of cancer or hepatitis C, among other conditions,” the AP wrote. “They often represent treatment breakthroughs but can cost considerably more than other prescriptions. Use of these drugs is climbing, and insurers and employers are looking for help containing that cost.”