CVS Health Corp. said Thursday that it had agreed to acquire the pharmacy services provider Omnicare for $12.7 billion, including debt.
The deal is expected to extend CVS Health’s operations in dispensing prescription drugs to assisted-living and long-term care centers and to broaden its presence in the specialty pharmacy business as it seeks to capitalize on the aging U.S. population.
Under the terms of the deal, CVS Health will pay $98 a share in cash for Omnicare and assume $2.3 billion in debt.
With the acquisition, CVS said it is looking to expand its business into the growing long-term care industry. Most of Omnicare’s business involves distributing prescription drugs to nursing homes and assisted-living operations.
The purchase also allows CVS to broaden its reach in the specialty pharmacy area. About a quarter of Omnicare’s net sales in 2014 came from its specialty unit, which dispenses drugs that are typically high-priced and require special handling, such as refrigeration.
The specialty pharmacy industry has been booming in recent years as drugmakers increasingly focus on medications that are complex — often requiring injections — and that treat rare or serious chronic diseases with small patient populations.
Omnicare’s specialty unit is no exception. Its net sales increased 20 percent to $1.67 billion in 2014 from the previous year. Its long-term care business, by contrast, rose just 2.6 percent during that period to $4.8 billion.
“The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel,” said Larry J. Merlo, the president and chief executive of CVS Health, based in Woonsocket, R.I. “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.”
CVS Health and its rivals in the pharmacy benefits management sector have been on a merger spree recently.
In February, Rite Aid, a pharmacy chain rival to CVS, agreed to acquire the pharmacy benefit manager Envision Pharmaceutical Services for $2 billion in cash and stock from the private equity firm TPG. In March, a unit of the UnitedHealth Group said it would buy the pharmacy benefits manager Catamaran in an all-cash deal worth nearly $13 billion. The deal combines UnitedHealth’s pharmacy services business with BriovaRx.
Although not directly tied to its pharmacy benefits management business, the Omnicare deal is expected to strengthen CVS Health’s negotiating power with drugmakers, a driver behind the recent deals by pharmacy benefits managers.
CVS owns the country’s largest specialty pharmacy, which brought in $20.5 billion in revenue last year and holds 26 percent of the specialty market. Accredo, which is owned by the pharmacy benefits manager Express Scripts, accounts for 19 percent and Walgreens Specialty Pharmacy is 11 percent, according to a report by Pembroke Consulting, which follows the pharmacy industry.
CVS is the largest pharmacy company in terms of prescription revenues when sales at both its retail stores and mail order pharmacy are accounted for. In 2014, its retail outlets brought in $47.1 billion in prescription revenues and its mail pharmacy sales were $25.4 billion, according the Pembroke Consulting report. The Walgreen Co. has the slight edge in terms of prescription sales from retail outlets — bringing in $49.4 billion in 2014 — and is the second-largest U.S. pharmacy, according to the report.
Omnicare, based in Cincinnati, posted sales of $6.4 billion in 2014. It employs about 13,000 people at 160 locations in 47 states.
Both companies’ boards have approved the transaction. Omnicare’s shareholders will now consider the potential deal, which is also subject to regulatory approval.
The transaction is expected to close near the end of this year.