May 21, 2015 / 11:15 AM / in 4 years

CVS to expand pharmacy business with $10.1 billion Omnicare buy

(Reuters) - Drugstore operator CVS Health Corp (CVS.N) said Thursday it will spend $10.1 billion to buy Omnicare Inc OCR.N, a company that supplies prescription medicines to nursing, assisted living and other healthcare facilities.

The move gives CVS, the second-largest U.S. drugstore operator, access to the older, sicker U.S. population and builds on its specialty pharmacy, which provides drugs to people with expensive chronic conditions such as rheumatoid arthritis.

CVS said it expects the deal to add about 20 cents to adjusted earnings per share in 2016. The deal also includes debt of about $2.3 billion, the companies said.

The pharmaceutical sector has been consolidating as companies look to beef up and bargain for lower prices from both drug manufacturers and the three largest U.S. drug distributors.

“There’s a lot of purchasing scale. There’s a lot more volume. They could renegotiate their supply contracts given the volume,” said FBR analyst Steven Halper.

In addition to its drugstore chain and mail-order sales, CVS is the second-largest pharmacy benefit manager in the United States, securing pricing for big employers and government plans.

CVS offered $98 per Omnicare share, representing a premium of 4 percent to the closing price Wednesday of Omnicare, the top U.S. provider of pharmacy services to the elderly.

The offer is at a nearly 21 percent premium to Omnicare’s April 21 close, a day before Bloomberg reported that the company was exploring a sale.

Shares of Omnicare, rose 1.5 percent to $96 while CVS was up 2.8 percent at $104.08.

FOLLOWS OTHER DEALS

Bloomberg first reported Wednesday that CVS was nearing a deal to buy Omnicare.

Speculation has mounted of more pharmacy-industry consolidation as others have tied up, and the field of companies involved in drug distribution, sales or management has shrunk.

A CVS pharmacy is seen in New York City in this July 28, 2010 file photo. CVS Health Copr, the No. 2 U.S. REUTERS/Mike Segar

Health insurer UnitedHealth Group Inc (UNH.N) agreed to buy Catamaran Corp CTRX.O CCT.TO for about $12.8 billion in March. Rite Aid Corp (RAD.N) bought pharmacy benefit manager EnvisionRx for about $2 billion in February. Last year, pharmacy Walgreen tied up with European pharmacy and drug distribution company Boots Alliance.

CVS said it secured $13 billion in financing from Barclays for the deal, which is expected to close near the end of 2015.

Barclays and Evercore are CVS’s financial advisers, while Bank of America Merrill Lynch and Centerview Partners advised Omnicare. CVS’s legal adviser is Sullivan & Cromwell LLP, while White & Case LLP served as Omnicare’s legal counsel.

Reporting by Caroline Humer in New York and Sruthi Ramakrishnan and Vidya L Nathan in Bengaluru; Editing by Sriraj Kalluvila and Bernadette Baum

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