In connection with Catalyst’s proposed acquisition of Walgreens Health Initiatives, Inc., Catalyst Health Solutions, Inc. (CHSI) and Walgreen Co. (WAG) have been granted early termination of the waiting period by the Federal Trade Commission (FTC).
Catalyst Health had agreed to acquire the pharmacy benefit management (PBM) business of Walgreen on March 9 for $525 million in cash. Additionally, Walgreen anticipated the deal to be EPS-neutral in fiscal 2012.
Furthermore, the acquisition is expected to close in the first half of calendar 2011, subject to closing conditions.
Walgreen expects that the one-time gain associated with the deal will offset the effects of transition or associated one-time cost in the current fiscal year.
Subsequent to this deal, Walgreen will be able to better focus on its 7,700 drug stores. Through this transaction, Catalyst Health will expand its PBM business and raise its membership to more than 18 million from the current level of 7 million.
The deal once again rekindles the debate on whether it makes sense for a drug store to have its own PBM business or not. This dispute came to the forefront in 2007 with the acquisition of Caremark by the retail drug store operator CVS resulting in CVS Caremark Corporation (CVS).
However, for the past few quarters, the PBM business of CVS has been recording declines in revenues. It is presumed that the combination of drug stores and PBM creates a conflict of interest as the former aims at higher revenues while the latter concentrates on cost reduction.
Catalyst Health had posted strong fourth-quarter 2010 earnings of 56 cents per share, surpassing the Zacks Consensus Estimate of 52 cents. In fiscal 2010, Catalyst Health posted adjusted earnings of $1.93, which exceeded the Zacks Consensus Estimate of $1.88.
The increase was due to Catalyst Health’s strong marketing strategy and leveraging its infrastructure and controlling overhead expenses. Besides, client renewals and a higher generic utilization were strongly supported by the beneficial acquisition of FutureScripts subsidiaries and securing new acquisitions.
On the other hand, Walgreen’s first quarter fiscal 2011 result has been encouraging despite the current economic uncertainty, which is impacting discretionary spending and reimbursement issues. The company has made satisfactory progress with respect to the CCR rollout and is achieving the targeted savings under the rewiring initiative. Moreover, Walgreen’s various steps to grab a share of the $40 billion immunization market are commendable.
CATALYST HEALTH (CHSI): Free Stock Analysis Report
CVS CAREMARK CP (CVS): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
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