CVS to Buy Omnicare in $12.7 Billion Pharmacy Expansion Deal

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CVS-Omnicare Deal Marries Pharmaceuticals, Medicare

CVS Health Corp. agreed to acquire nursing-home pharmacy Omnicare Inc. in a deal valued at $12.7 billion, adding services for the elderly to bolster its position as the biggest U.S. retailer of prescription drugs.

CVS will pay $98 per share in cash, the companies said in a statement on Thursday. Omnicare, with a market value of about $9.2 billion, hired advisers to explore a sale earlier this year. The deal includes about $2.3 billion in debt.

Omnicare delivers drugs and helps senior-living facilities manage residents’ medications. CVS is the nation’s second-largest pharmacy benefits manager, handling drug plans for health insurers and employers. In its most recent quarter, growth in sales from that business far outpaced the company’s retail division.

The acquisition puts CVS in position to sell to a growing market as the U.S. population ages, the company said. The number of people 65 or older is expected to grow more than 80 percent to 72.1 million from 2009 to 2030, according to the U.S. Department of Health and Human Services.

Shares of CVS, based in Woonsocket, Rhode Island, rose 2.4 percent to $103.69 at the close in New York. Covington, Kentucky-based Omnicare climbed 1.7 percent to $96.26.

The acquisition price represents a 21 percent premium over Omnicare’s closing price on April 21, the day before Bloomberg News reported the company was exploring a sale.

Both CVS and Omnicare are big in Medicare Part D, a federal program that subsidizes medicine for retirees, Charles Rhyee, a New York-based analyst for Cowen Group Inc., said in an interview last month. Omnicare also drew interest from industry leader Express Scripts Holding Co., people with knowledge of the matter said last month.

Board Approvals

The boards of both CVS and Omnicare approved the transaction, which holders of Omnicare’s common stock must also clear, according to the statement. It’s expected to close, pending regulatory approval, at the end of the year and boost CVS’s adjusted earnings per share by 20 cents next year, CVS said.

Omnicare Chief Executive Officer Nitin Sahney could be eligible for about $17 million if he’s terminated after the deal, according to the company’s filings. That includes vesting restricted stock and a severance payment and assumes a $98 share price.

Demand for pharmacy services is rising as patients, insurers and companies look for ways to manage costs with drug prices increasing. Pharmacy-services providers are combining to gain a bigger piece of the growing market.

UnitedHealth Group Inc. said in March that it would buy Catamaran Corp. in a $12.8 billion deal to create a third-place competitor. That deal came on the heels of Rite Aid Corp.’s agreement to buy pharmacy benefits manager EnvisionRx for about $2 billion.

Financial Advisers

Express Scripts became the biggest pharmacy-benefits management company after purchasing Medco Health Solutions Inc. three years ago for $34 billion including net debt.

Barclays Plc and Evercore Partners Inc. acted as financial advisers and investment bankers to CVS. Sullivan & Cromwell LLP advised the company on legal matters and Dechert LLP on antitrust questions.

Bank of America Merrill Lynch and Centerview Partners were financial advisers to Omnicare, and White & Case LLP its legal counsel.

Based on Omnicare’s shares outstanding, the cash portion of the CVS deal is valued at about $9.5 billion. Aside from the $2.3 billion in debt, the rest of the enterprise value of $12.7 billion comes from options and restricted shares along with convertible bonds, CVS said.

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