Lupin 2023

Acquisition takes CVS into new dispensing channel

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WOONSOCKET, R.I. — Boosting its services for the burgeoning senior market, CVS Health has agreed to acquire Omnicare — the nation’s largest provider of pharmaceutical services to long-term care facilities — for $12.7 billion.

With the acquisition, which includes $2.3 billion in debt, CVS Health will significantly expand its ability to dispense prescriptions in assisted living and nursing homes. By 2050, one in five Americans will be 65 or older, up from 12% in 2000, according to the Congressional Budget Office. And virtually all nursing homes and residential care communities already offer on-site pharmaceutical services.

Cincinnati-based Omnicare has 160 locations in assisted living and long-term care facilities in 47 states. The company had sales of $6.4 billion last year. First quarter sales rose 5.6% to $1.7 billion.

The deal, which is expected to close near the end of the year, “significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel,” said president and chief executive officer Larry Merlo. “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. We have been impressed by the Omnicare team and what they have created for the patients they serve.”

CVS Health will also expand its presence in the rapidly growing specialty pharmacy business. Omnicare’s complementary specialty pharmacy platform and clinical expertise will augment CVS Health’s capabilities and enable it to continue to provide innovative and cost-effective solutions to patients and payers.

“We are pleased to have reached this agreement with CVS Health, one of the leading companies in the health care industry, which we believe will allow us to accelerate our mission of enhancing the quality and cost-effectiveness of care for complex patient populations,” said Omnicare president and CEO Nitin Sahney. “This exciting combination is the result of a broad and thorough review of our strategic options. On behalf of the Omnicare team, I’d like to thank our 13,000 employees, whose hard work and dedication have enabled Omnicare to become a recognized leader in pharmacy services.”

Given the aging U.S. population, long-term care is a growth segment of the health care system. More people are expected to use assisted living facilities and independent living communities in the coming decades, creating a substantial growth opportunity for those companies serving the health care needs of seniors.

In entering this new customer distribution channel, CVS Health will deliver meaningful benefits to consumers, patients, caregivers and payers by providing highly coordinated clinical pharmacy care across multiple treatment settings from retail to long-term care. CVS Health will help improve patient outcomes and provide enhanced continuity of care to patients and caregivers as they transition through the health care system.

The company expects to achieve significant purchasing and revenue synergies as well as operating efficiencies from the combination. It expects the transaction to be approximately 20 cents accretive to adjusted earnings per share in 2016, its first full year, excluding integration and any onetime transaction costs. The deal is expected to become increasingly accretive to adjusted EPS in subsequent years.

CVS Health has secured $13 billion in fully committed unsecured bridge financing from Barclays and expects to put in place permanent financing in the form of senior notes and/or term loans prior to the closing. CVS Health expects that it will continue to have a solid balance sheet and, with its strong free cash flow, is committed to returning to its targeted leverage ratio of 2.7 times adjusted debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization).

The boards of both companies have approved the transaction, which is subject to approval by the holders of Omnicare’s common stock, as well as other customary closing conditions, including applicable regulatory approvals.


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