Omnicare Inc. (OCR), which sells drugs to long-term care facilities and nursing homes, recently reported that it went public with an offer valued at $457 million for pharmacy management services company, PharMerica Corporation (PMC). The shares of both companies subsequently went up. Omnicare and PharMerica are the biggest institutional pharmacy providers in the U.S.
The cash offer from Omnicare values PharMerica at $15 per share, a premium of about 37% to the latter’s closing price last Monday. Inclusive of debt, the deal values PharMerica at approximately $716 million. The deal is not subject to financing issues.
Omnicare stated that the integrated entity would lead to savings and wider services. Its CEO added that the company overwhelmingly preferred a negotiated settlement with PharMerica. At the same time, Omnicare is prepared to directly approach PharMerica shareholders in the absence of fruitful negotiations.
It is being reported that PharMerica may have refused to commence negotiations. The company blamed Omnicare of engaging in selfish tactics by making a public offer. PharMerica stated that it rejected the deal as it undervalues the company. The company added that it is willing to discuss the matter, but the proposed deal may not be in the interest of its clients and employees.
PharMerica also stated that receipt of anti-trust clearance may be difficult to obtain and could entail lengthy court and administrative procedures. Omnicare, on the other hand, stated that the deal may be consummated at an early date.
PharMerica released, on August 24, 2011, a correspondence to Omnicare regarding the already refused, unsolicited and conditional acquisition proposal from Omnicare.
PharMerica reportedly runs 94 pharmacies in 44 states and serves long-term care facilities, hospitals and nursing homes. It was formed by the spin-off, in July 2007, and amalgamation of the institutional pharmacy businesses of AmerisourceBergen Corporation (ABC) and Kindred Healthcare Inc. into a stand-alone company.
The two companies stand to benefit as popular drugs, such as Plavix, Lipitor and others, are slated to lose patent protection. This will permit less expensive generic drugs to enter the market, which means larger margins for Omnicare and PharMerica.
Omnicare is a market leader in providing pharmaceutical care for the elderly. The industry is essential to serving the needs of the long-term care population. The company has reduced costs and increased efficiency through its Full Potential Plan.
However, the beneficial effects are partly offset by pressure from reimbursement cuts. Longer term, Omnicare will be able to offset some of these reimbursement cuts through better purchasing. Generics coming to market in the next few quarters present a substantial profitability opportunity due to Omnicare’s higher exposure to the institutional pharmacy channel than in past years.
AMERISOURCEBRGN (ABC): Free Stock Analysis Report
OMNICARE INC (OCR): Free Stock Analysis Report
PHARMERICA CORP (PMC): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment