CVS Caremark set to complete $1.25B Universal American Medicare Part D buyout
CVS Caremark expects to complete its $1.25 billion acquisition of the Medicare Part D business of Universal American on Friday – a deal that would more than double CVS Caremark's Part D business.
"This transaction will make CVS Caremark a top provider of service in Medicare Part D, one of the nation's fastest growing healthcare segments," said Per Lofberg, president of CVS Caremark Pharmacy Services. "This acquisition will strengthen our business and allow us to expand products and services to Medicare beneficiaries while we work to lower the cost of pharmacy care."
CVS Caremark officials expects the acquisition will add approximately 8 cents to adjusted earnings per share in 2011.
"The Medicare Part D program is integral to CVS Caremark's long-term growth strategy. We believe that bringing together these two businesses will strengthen our competitive offerings, enabling us to provide Medicare beneficiaries with expanded products and services and lower the cost of pharmacy care," noted Lofberg in a Dec. 31, 2010 statement.
By acquiring Universal American, CVS Caremark aims to bolster a company that industry analysts contend is still struggling to reach its potential nearly four years after the blockbuster deal that merged CVS, one of the country's largest retail pharmacy chains, with Caremark, a leading pharmacy benefits management company.
Since the $27 billion merger in 2007, CVS stock has languished, returning just more than 7 percent in growth and dividends to investors since the merger was completed, compared with a 29 percent return from S&P 500 consumer staple stocks, according to a Bloomberg report. Further, CVS Caremark's two largest PBM competitors, Medco Health Solutions and ExpressScripts, have returned 58 percent and 168 percent, respectively, over that time.
The lagging performance has begun to weigh on those with sizeable holdings in the company. Earlier this month, investment firms SunAmerica Asset Management and Cambiar Investors began advocating for a split of the retail and PBM operations to unlock value for investors.
"There are no plans to split up the company," Carolyn Castel, a spokeswoman for CVS Caremark, told Bloomberg. "We are uniquely positioned to continue to develop and implement programs that meet our goals and enhance shareholder value."
Last month, the company named pharmacist and 20-year CVS veteran Larry Merlo CEO to replace Thomas Ryan, who is retiring. The company has also been aggressively buying back its own stock, announcing four separate stock repurchase authorizations representing roughly $11 billion in CVS Caremark shares.
