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Omnicare at Almost $10 Billion Still Worth It for CVS: Real M&A
2015-04-23 23:00:01.3 GMT


(For a Real M&A column news alert: {SALT REALMNA <GO>}.)

By Tara Lachapelle
(Bloomberg) -- For Omnicare Inc.’s potential suitors, even
a $9.8 billion price tag could more than pay for itself.
The supplier of drugs and services to nursing homes closed
Thursday at a record $86.31 a share after people with knowledge
of the matter said it’s exploring a sale. Yet a bid for as much
as $101 a share, or $9.8 billion -- which some analysts say is
conceivable -- still wouldn’t be expensive. Instead, it’d be a
way for industry buyers such as CVS Health Corp. or Walgreens
Boots Alliance Inc. to further boost next year’s profits and
payouts to their own shareholders.
CVS and Walgreens, along with Express Scripts Holding Co.,
AmerisourceBergen Corp., McKesson Corp. and Cardinal Health
Inc., could increase next year’s earnings by acquiring Omnicare
at that price, according to analyses by Credit Suisse Group AG
and Cowen Group Inc.
“I would certainly think that people would at least take
a look,” Charles Rhyee, a New York-based analyst for Cowen,
said in a phone interview. A sale to CVS would make the most
sense, he said.
A representative for Omnicare said the Covington, Kentucky-
based company doesn’t comment on speculation. Representatives
for Walgreens and AmerisourceBergen declined to comment, and
representatives for CVS, Express Scripts, McKesson and Cardinal
Health didn’t respond to phone calls or e-mails.

Managing Meds

Roughly three-quarters of Omnicare’s revenue and operating
profit comes from its long-term care group, which helps senior-
living facilities manage their residents’ medications. That
business dispensed about 111 million prescriptions last year.
Omnicare’s smaller specialty-care division focuses on high-cost
drugs with bigger reimbursement challenges for treatment areas
such as rheumatoid arthritis, multiple sclerosis and cancer.
Omnicare is on the block less than a month after
UnitedHealth Group Inc. agreed to buy Catamaran Corp. for about
$13 billion including net debt. And in February, Rite Aid Corp.
agreed to buy EnvisionRX from private-equity owner TPG for about
$2 billion.
Pharmacy-services providers are combining as they seek to
gain a bigger piece of a market that’s benefiting from
increasing demand. Patients, insurers and companies are trying
to manage costs amid rising drug prices.
A takeover of Omnicare for $101 a share translates into 21
times trailing 12-month Ebitda, which would be in line with
other industry transactions. The median multiple is about 20 for
those struck during the past decade that exceeded $1 billion,
according to data compiled by Bloomberg. Ebitda stands for
earnings before interest, taxes, depreciation and amortization.

Market Leaders

Express Scripts became the biggest pharmacy benefits
management company after purchasing Medco Health Solutions Inc.
three years ago for $34 billion including net debt. It’s still
the industry’s largest deal.
CVS has the second-biggest market share. Other possible
suitors -- AmerisourceBergen, Cardinal Health and McKesson --
are the dominant pharmaceutical distributors. Walgreens is the
largest U.S. drugstore chain by revenue.
An Omnicare purchase may make the most sense for CVS,
Cowen’s Rhyee said. Both are big in Medicare Part D, a federal
program that subsidizes medicine for retirees, so there could be
benefits from having the added scale. Also, as some drugstore
customers age, CVS could continue serving them when they move
into assisted-living centers and nursing homes, he said.

Two Sides

For other suitors, buying all of Omnicare may be a tougher
sell. For that reason, it may even be possible that Omnicare
gets broken up, according to Vicki Bryan, an analyst for Gimme
Credit.
As Credit Suisse’s Glen Santangelo put it, the specialty-
pharmacy and manufacturer-services side “is one of the coveted
assets in the industry.” The slower-growing long-term care
business is “generally less attractive,” which may make it
harder for some to justify a large takeover premium, the New
York-based analyst wrote in a report Thursday.
For Omnicare, selling itself makes sense because it
wouldn’t be able to achieve the same amount of scale as the big
distributors and pharmacies on its own, said Jonathan Palmer, a
New York-based analyst for Bloomberg Intelligence.
“Everybody else around them is getting bigger,” Palmer
said in a phone interview. “While Omnicare is the biggest
company in the institutional pharmacy market, they’re still a
niche player in the overall health-care services market -- and
that niche is pretty attractive to all those big companies.”

For Related News and Information:
Omnicare Said to Explore Sale of Nursing Home Drug Supplier
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
Bloomberg Intelligence - Health Supply Chain: BI HCSC <GO>
Merger Calculator: MRGC <GO>

To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman

BN 04/23 21:09 *TSIPRAS OPTIMISTIC ON GREEK DEAL `SOON'
BN 04/23 21:07 *TSIPRAS MET WITH MERKEL, HOLLANDE, JUNCKER IN BRUSSELS
BN 04/23 21:00 *TSIPRAS: IMMIGRATION PROBLEM IS MOST IMPORTANT CHALLENGE

*TSIPRAS SEES `SIGNIFICANT PROGRESS' IN BRUSSELS GROUP TALKS
2015-04-23 21:04:37.105 GMT

--JONES HAYDEN

-0- Apr/23/2015 21:04 GMT

Caterpillar to Honeywell Said to Eye Halliburton Energy Assets
2015-04-23 20:40:54.222 GMT


By Matthew Monks
(Bloomberg) -- The largest industrial companies in the
world, from Caterpillar Inc. to Honeywell International Inc.,
are about to get a rare chance to go big on oil.
They’re among more than half a dozen manufacturers --
including Siemens AG, Dover Corp., and General Electric Co. --
that are weighing offers for oilfield-services assets worth $5
billion to $10 billion that Halliburton Co. is preparing to
sell, people with knowledge of the matter said.
Also mulling bids are Emerson Electric Co. and Danaher
Corp., the people said, asking not to be identified discussing
private information. Halliburton and Baker Hughes Inc. are
selling up to four overlapping business lines to win regulatory
approval for their $34.6 billion deal.
The industrial players see the deal as a rare opportunity
to expand in the oil and natural gas industry in one fell swoop,
the people said. Halliburton is preparing to send offering
materials to those companies, as well as private-equity firms
and rival oilfield-services providers, in the coming weeks, the
people said.
“These are great businesses,” said Robert MacKenzie,
director of research with Iberiabank Corp.’s capital markets
division. “Once in a generation do you see industry leading
businesses come to market in an open-type sale.”
Representatives for Caterpillar, Emerson, Honeywell,
Halliburton and GE declined to comment. Spokespeople for
Siemens, Dover and Danaher didn’t return calls for comment.

DOJ Talks

First up will be the drill bits unit and another that uses
data to track and steer the direction of drills, the people
said. They’re worth as much as $5 billion in total, people with
knowledge of the matter said last month. Halliburton is also
talking with the U.S. Department of Justice about separating
parts of the companies’ cementing and completion tools
businesses, which together could fetch more than $5 billion, the
people said.
Some of the industrial companies may decide not to bid
after evaluating the assets, given the volatility in oil prices
that has sapped demand for drilling services and parts, the
people said.
Still, they have two potential advantages over buyout firms
and oilfield-services providers expected to be in the mix, the
people said. Their high credit ratings give them better access
to debt financing than private equity firms, which means they
can make higher offers while still generating good returns, one
person said.

GE Spree

Their edge over oilfield services companies that analysts
have pegged as logical bidders for Halliburton’s cast-offs --
including National Oilwell Varco Inc. and Superior Energy
Services Inc. -- comes down to competition: Halliburton doesn’t
want to give any more market share to companies that already
offer the same services, the people said. That means it would
prefer selling to a new player entering the market.
Some of the industrial companies already have oil and gas
businesses: GE’s oil unit acquired more than $10 billion in
assets over the past five years, including the $3.3 billion for
artificial-lift maker Lufkin Industries Inc. in 2013.
In a February interview, Lorenzo Simonelli, chief executive
officer of GE Oil & Gas, said he will look to make opportunistic
acquisitions through the market downturn.
Siemens agreed to buy energy equipment maker Dresser-Rand
Group Inc. for $7.6 billion last year. Honeywell provides
equipment for offshore rigs and pipeline operators, while
Caterpillar makes engines, generators and products used in
drilling and compressing gas.
Caterpillar signaled a willingness to do deals in the
energy sector in March, when an analyst asked the company about
its appetite for oil and gas takeovers at an industry
conference.
“Our balance sheet is in very good shape, so we have the
capability and the capacity to do more M&A if the right targets
present themselves” said Richard Moore, Caterpillar’s director
of investor relations, according to a transcript compiled by
Bloomberg.

For Related News and Information:
Halliburton and Baker Hughes Said to Plan April Asset Sales
Halliburton Cutting Up to 8% of Workforce Amid Oil Collapse
Top Stories:TOP<GO>
--With assistance from Shruti Date Singh in Chicago, Thomas
Black in Dallas and Richard Clough in New York.

To contact the reporter on this story:
Matthew Monks in New York at +1-212-617-8111 or
mmonks1@bloomberg.net
To contact the editors responsible for this story:
Mohammed Hadi at +1-212-617-2914 or
mhadi1@bloomberg.net
Will Wade