All speculations have been put to rest as CVS Health (NYSE:CVS) said it was acquiring Oak Street Health (NYSE:OSH) in an all-cash deal at $39 per share, representing an enterprise value of ~$10.6B.
Buzz around the primary care company Oak being an acquisition target had been going on for months but on Monday it reportedly it came to even more limelight with potential terms of the acquisition. However, if the this deal will survive a regulatory scrutiny that remains to be seen as antitrust advocacy group is already opposing the potential deal.
CVS Health President and CEO Karen Lynch said on Wednesday that “Combining Oak Street Health’s platform with CVS Health’s unmatched reach will create the premier value-based primary care solution,” said
Oak employs ~600 primary care providers and has 169 medical centers across 21 states. Oak has shown that its model is scalable, according to CVS.
CVS said that by 2026, Oak will have over 300 centers, each of which has the potential to contribute $7M of Oak Adjusted EBITDA at maturity, representing more than $2B of Oak embedded Adjusted EBITDA at that time.
CVS projects more than $500M in synergy potential over time, enhancing its long-term adjusted operating income growth.
After the deal closes, Oak Street CEO Mike Pykosz will continue to lead Oak, which will become part of CVS’s recently formed Health Care Delivery organization.
CVS said it expects to fund the transaction through available resources and existing financing capacity and is committed to maintaining its current credit ratings.
Private equity funds affiliated with Newlight Partners and General Atlantic and certain board members of Oak, which collectively own ~45% of Oak’s common stock, have agreed to vote the shares they own in favor of the transaction.
The deal was approved by the boards of both companies.
The transaction is expected to close in 2023, subject to approval by a majority of Oak stockholders, regulatory approval and other closing conditions.
Outlook:
CVS said it continues to project that it will achieve 2023 Adjusted EPS in the range of $8.70 to $8.90 (consensus $8.86)
CVS noted that it is now targeting 2024 adjusted EPS of about $9, growing to nearly $10 in 2025, with upside in 2025 based on the successful resolution of its Medicare Stars Ratings mitigation efforts. (Consensus for 2024 is $9.59 and for 2025 is $10.72).
The company said the 2024 and 2025 adjusted EPS trajectories reflect the impact of the previously disclosed 2024 Medicare Stars Ratings headwind and Centene contract loss, closing of the Oak transaction in 2023, and projected contributions from the pending Signify Health transaction in 2024 and beyond.
OSH +4.84% to $35.31 premarket Feb. 8
CVS +2.00% to $87.70 premarket