Sullivan & Cromwell Advise CVS Health’s Purchase of Omnicare

CVS Health Corporation and Omnicare, Inc. announced today that they have entered into a definitive agreement for CVS Health to acquire Omnicare, the leading provider of pharmacy services to long term care facilities, for $98.00 per share in cash, for a total enterprise value of approximately $12.7 billion, which includes approximately $2.3 billion in debt. In total, Omnicare has approximately 13,000 employees at 160 locations in 47 states across the U.S.

With the acquisition of Omnicare, CVS Health will significantly expand its ability to dispense prescriptions in assisted living and long term care facilities, serving the senior patient population. 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 CVS Health to continue to provide innovative and cost-effective solutions to patients and payors.

The boards of directors 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. The transaction is expected to close near the end of 2015.

CVS Health expects to achieve significant purchasing and revenue synergies as well as operating efficiencies from this combination. The company expects the transaction to be approximately 20 cents accretive to Adjusted EPS in 2016, its first full year, excluding integration and any one-time transaction costs. It is expected to become increasingly accretive to Adjusted EPS in subsequent years. The company 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 of the transaction. 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.

“The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel,” said CVS Health President and CEO 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.”

“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 has 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 payors 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.

CVS Health received investment banking and financial advice from Barclays and Evercore. The company was advised on transaction legal matters by Sullivan & Cromwell LLP and on antitrust matters by Dechert LLP.

BofA Merrill Lynch and Centerview Partners are serving as financial advisors to Omnicare. White & Case LLP is serving as Omnicare’s legal counsel.