Walgreen Co. plans to sell its pharmacy benefit management business to Catalyst Health Solutions Inc. for $525 million.

Walgreens, Walgreens Health Initiatives, WHI, Catalyst Health Solutions, pharmacy benefit management, pharmacy benefit management business, PBM, PBM business, pharmacy benefits, Greg Wasson, David Blair, prescription drug benefit, PBM services, Russell Redman

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Walgreens strikes deal to sell PBM business

March 9th, 2011

DEERFIELD, Ill. – Walgreen Co. plans to sell its pharmacy benefit management business to Catalyst Health Solutions Inc. for $525 million.

Walgreens said Wednesday that under the cash deal, Catalyst will acquire all the capital stock of Walgreens Health Initiatives Inc. (WHI) the drug store chain's PBM unit. The transaction is expected to close by the end of June.

"With nearly 7,700 drug stores as our center of gravity, we are focused more than ever on delivering convenient, affordable, high-quality pharmacy, health and wellness solutions and on enhancing our full scope of services to become America's first choice for health and daily living needs," Walgreens president and chief executive officer Greg Wasson said in a statement.

Plans call for Walgreens, under a transition services agreement, to provide certain services to Catalyst after the deal closes to ensure a smooth transition for WHI's customers and patients. The drug chain said it expects the services to cost about $40 million.

The company added that it expects to record a gain on the sale of WHI and that it will offset any one-time or transition costs associated with the transaction in the current fiscal year.

Rockville, Md.-based Catalyst said the deal brings together two of the nation's leading PBMs. With the acquisition of WHI, Catalyst's PBM membership will swell from about 7 million people to more than 18 million, and annual prescription volume stands to expand from 80 million to over 165 million.

"This is a significant milestone for Catalyst and an important next step in our long-term growth strategy," stated David Blair, CEO of Catalyst Health Solutions.

Catalyst also has entered into an agreement to provide prescription drug benefit services for Walgreens' 244,000 active employees in addition to retirees and dependents, as well as an agreement to administer the Walgreens Prescription Savings Club.

"Catalyst has an outstanding reputation and is committed to service excellence and innovation. We are confident that WHI's customers will benefit from Catalyst's programs, resources and access to state-of-the-art PBM services," Wasson commented. "We look forward to working with Catalyst to ensure a smooth transition."

The companies said that Catalyst will maintain a significant presence in the Chicago area for the Walgreens employees expected to join Catalyst as part of the transaction. Founded in 1995, WHI is a full-service PBM providing services to employer groups, health plans, Medicare clients and individual consumers nationwide.

"We believe WHI's clients and members will benefit from our sole focus on excelling in providing PBM services," Blair said. "We are gaining WHI's talented employees who have been integral to the growth and success of the business and are pleased to welcome them to the Catalyst team. Together, we will provide continuity for our valued customers and deliver market-leading services that will further improve health outcomes."

Walgreens said it will retain and look to continue growing its specialty pharmacy and mail service businesses, as well as provide those services in support of Walgreens, WHI and Catalyst patients.

"Our specialty, infusion and mail pharmacy services are an important extension of our drug stores, retail clinics, work-site health centers and medical facility pharmacies," Wasson stated. "Together, these services and locations are part of our industry-leading 8,000-plus points of care and are on the frontline of helping millions of patients live well, stay well and get well."

Analyst Mark Miller of William Blair & Co. called the WHI sale a positive move for Walgreens.

"Walgreens will retain its mail-order and specialty pharmacy physical assets and continue to be a preferred provider for Catalyst mail fulfillment. We believe that Catalyst represents a good partner for Walgreens, enhancing the strategic value of the deal," Miller said Wednesday in a research note on the deal.

"The transaction removes one element of uncertainty for Walgreens and reinforces the organization's focus on driving 'more from the core,' " he added. "Considering that Walgreens is generating more than $2.5 billion of free cash flow annually (with $1 billion for dividend payments), the deal is further affirmation that the company is unlikely to diversify unwisely."