CVS Health Reaches Agreement to Acquire Oak Street for $10.6B

UTC by Benjamin Godfrey · 3 min read
CVS Health Reaches Agreement to Acquire Oak Street for $10.6B
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Should CVS Health secure the needed approval to acquire both Oak Street and Signify Health, it will unleash a new dawn for the company.

American healthcare giant CVS Health Corp (NYSE: CVS) has reached an agreement to acquire Oak Street Health Inc (NYSE: OSH), a primary healthcare provider for the sum of $10.6 billion. According to a report by CNBC, CVS is offering $39 per share to take up ownership of the company.

This offering represents a 16% premium from the Tuesday close of Oak Street. The deal underscores the growing clamor to gain a presence within the primary healthcare offshoot of medical service offerings in the country. With the acquisition, CVS will take up ownership of 160 primary healthcare centers spread out across the country.

Oak Street is a dominant player in offering primary health care to older adults that are placed on Medicare. The company was founded back in 2012 and it has grown its workforce to more than 5,900 as of 2022.

The emergence of the COVID-19 pandemic re-ignited the interest of big healthcare service providers in the industry. With the patronage tearing through the roof at the time, CVS set out to look for a smaller, but vibrant partner it could acquire and stretch its services through. The company marked Oak Street, and also Signify Health Inc (NYSE: SGFY) which it planned to buy for $8 billion.

CVS reached an agreement to acquire Signify Health as far back as September last year. The deal to buy both companies is now currently under review by regulators with experts signaling what could be an antitrust concern.

The Signify Health deal is more complicated considering the closeness of service offerings. The chances of the company securing approval for Of Oak Street have been placed at about 80%. This projection was given by Evercore analyst Elizabeth Anderson.

The shares of CVS are up by 2.50% at the time of writing to $88.15.

CVS Health and Oak Street to Usher in a New Era

Should CVS Health secure the needed approval to acquire both Oak Street and Signify Health, it will unleash a new dawn for the company. With the acquisition, CVS will be poised to compete with other players. These include Walgreens Boots Alliance Inc (NASDAQ: WBA) and Amazon.com Inc (NASDAQ: AMZN) amongst others.

At the moment, CVS is facing an uphill battle in some of its core business units. According to the CNBC report, CVS has received lower ratings on its Medicare Advantage insurance plans and the end of a major pharmacy benefit management contract. This rating has the potential of reducing patronage and potential revenue.

The proposed acquisition of the new firms is bound to help cushion any bearish outlook on the units. However, CVS has maintained a relatively strong outlook with respect to its recent performance. The company posted better-than-expected revenue and Earnings Per Share (EPS).

For proper context, the Rhode Island-based company said its EPS came in at $1.99 as compared to the $1.92 for the fourth quarter. The healthcare giant is optimistic about a promising fiscal year ahead.

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