From Breakingviews - CVS pays exorbitant $10 bln price to diversify
Here's how the strategy could work out. The number of Oak Street clinics should double by 2026, generating over $2 billion of adjusted EBITDA. Ignore the adjustments and put them on the 7 times multiple at which CVS trades, and the deal might be worth more than $14 billion by then. It would amount to around a 10% annualized return before factoring in the $500 million of revenue uplift and cost savings that CVS boss Karen Lynch is projecting.
Despite its aggressive reinvention efforts, CVS has generated only a 34% total return for shareholders over the past five years, according to Datastream. The S&P 500 IndexFollow @rob_cyran on TwitterCVS Health said on Feb. 8 it had agreed to buy Oak Street Health for about $9.5 billion, or $39 per share. The price represents a roughly 73% premium to the target’s undisturbed price. Including debt, the deal is worth $10.6 billion.
Oak Street runs 169 clinics that offer primary care, predominantly to older patients covered by Medicare. It has approximately 600 healthcare providers on staff, and 159,000 patients. In September, CVS agreed to buy Signify Health, a home healthcare provider mostly for Medicare patients, for $8 billion.Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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