Drug store retailer, Rite Aid Corporation (RAD) announced that it has penned a deal with TPG’s portfolio company, Envision Pharmaceutical Services (“EnvisionRx”), to buy the latter for roughly $2 billion. Investors reacted positively to the news as is evident from a 6.6% jump in Rite Aid’s stock price following the announcement.
Rite Aid stated that it will pay the acquisition price partly in cash (nearly $1.8 billion) and the balance as stock (including about 27.9 million shares). Also, the purchase price is inclusive of the value of an anticipated future tax benefit of $275 million.
Post this deal, which is anticipated to close by Sep 2015, EnvisionRx will operate as Rite Aid’s wholly owned subsidiary, with its base in Ohio.
EnvisionRx, being a pharmacy benefit management (“PBM”) company, offers transparent as well as traditional PBM services via its respective EnvisionRx and MedTrak PBM’s.
Alongside, it provides fully integrated mail-order and specialty pharmacy services; an innovative claims adjudication software; benefit of accessing the biggest cash pay infertility discount drug program countrywide and a national Medicare Part D prescription drug program.
Thus, management of Rite Aid believes that the addition of EnvisionRx to its portfolio will extend its wellness and health offerings. This is because the acquisition will enable Rite Aid to provide pharmacy offerings via mail-order, specialty and retail networks, which in turn, will help offer cost-friendly health plans and solutions for employers.
Moreover, EnvisionRx is expected to generate revenues of nearly $5 billion and EBITDA of $150–$160 million in 2015. EnvisionRx’s integration into Rite Aid is estimated to augment the latter’s earnings per share after the first year of the deal itself. Looking further ahead, this deal is most likely to drive Rite Aid’s growth and bolster its shareholder value.
Also, per sources, this move will help Rite Aid to explore a world beyond retail, by adding PBM to its portfolio. However, its PBM business will be much smaller than that of CVS Health Corporation (CVS), which acquired Caremark in 2007.
Per sources, with Caremark’s pharmacy benefits, CVS holds the second position in the industry, following Express Scripts Holding Company (ESRX). Now, with Rite Aid adopting the pharmacy benefit business, Walgreens Boots Alliance Inc. (WBA) is the only major American pharmacy chain without a pharmacy benefit business.
Coming back to Rite Aid, we conclude that the combination of its established presence in the retail healthcare arena with EnvisionRx’s innovative PBM, is likely to prove beneficial for the Zacks Rank #2 (Buy) company by enhancing its clientele and solidifying its current business platform.
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