UnitedHealth Group Inc. (UNH) To Buy Catamaran At $12.8 Billion


The Pharmacy benefit unit of UnitedHealth Group Inc. (NYSE:UNH) is buying out Catamaran Corp (USA) (NASDAQ:CTRX) for nearly $13 billion in an all-cash transaction. UnitedHealth expects the deal to boost its net earnings by 2016. Shareholders of Catamaran and regulators are expected to weigh in on the proposed transaction before it closes.

UnitedHealth Group Inc. (NYSE:UNH)’s OptumRx, a pharmacy benefits manager, is set to combine with Catamaran, creating a pharmacy services entity with a larger clout to negotiate drug prices with manufacturers. There have been a number of consolidations in the pharmacy services space as players seek to build stronger forces to try and pressure pharmaceutical makers to lower drug prices. Such deals have particularly increased as the expensive drugs known as biologics continue to take a larger share of U.S. medical costs.

Just last month, Rite Aid Corporation (NYSE:RAD) placed $2 billion on the table to bring pharmacy benefits manager Envision Pharmaceutical Services under its umbrella. Players in the pharmacy services industry are consolidating so that they can have a larger sway on makers of expensive drugs, such as those for Hepatitis C that cost nearly $1,000 a pill.

27% premium

OptumRx will combine with Catamaran at a cost of $12.8 billion, which will be funded by existing cash and new borrowing. Shareholders of Catamaran will receive $61.50 per share, which represents a 27% premium over the closing price immediately before the deal was announced.

400 million prescriptions a year

Catamaran manages over 400 million prescriptions every year, while OptumRx fills over 600 million prescriptions each year. The scale of the two pharmacy benefits managers explains why the combined entity will have a larger influence over drug manufacturers on cost issues.

According to OptumRx’s CEO, Larry Renfro, the deal will lead to significant value for their clients, which include health plans, third-party administrators and government.

Accretive to earnings

UnitedHealth Group Inc. (NYSE:UNH) disclosed that the acquisition of Catamaran will add $0.30 per share to its net earnings, starting next year.

Leadership of the new entity

The proposed acquisition of Catamaran is subject to approval of the regulators and shareholders of the company. If everything goes as UnitedHealth Group Inc. (NYSE:UNH) expects, Catamaran’s CEO, Mark Thierer, will become the CEO of the combined company while OptumRx’s current CEO, Renfro, will move on to the role of president of the new entity.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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