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
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