(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. (NYSE:CVS) or Walgreens Boots Alliance Inc. (NYSE:WBA) 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, Ky.-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 emails.
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.