CVS to buy Medicare business of Universal American

[January 01, 2011]  WOONSOCKET, R.I. (AP) -- CVS Caremark Corp. said Friday it will pay $1.25 billion to buy Universal American Corp.'s Medicare prescription drug services unit.

CVS said it pursued the deal because with the country's population aging, a growing percentage of Americans will get their prescription drug coverage from Medicare.

Shares of Universal American jumped by more than a third in morning trading. The company said shareholders would get $12.80 to $13 per share in cash and would own a new company operating Universal American's other businesses.

CVS said the deal will more than double the size of its Medicare drug business. Universal American serves about 1.9 million people in the Medicare Part D federally subsidized prescription benefit program for Medicare recipients, while CVS serves 1.2 million.

Woonsocket-based CVS, which operates a chain of drugstores and manages pharmacy benefits, said the deal is expected to close in the second quarter of 2011 and will add to its earnings per share within a year. The agreement is contingent on approval by Universal American shareholders.

Under the agreement, CVS will acquire all stock in Universal American and give Universal American's shareholders 100 percent of a new public company that will own Universal American's Medicare Advantage and traditional insurance businesses. The new company will have about $640 million in cash and no debt, Universal American said.

CVS's third-quarter profit fell more than 20 percent, to $809 million, as its Caremark unit continued to lose business. CVS pharmacy services revenue fell 8.5 percent as private employers canceled contracts and patients defected from its Medicare drug coverage plans. The company said pharmacy shoppers were spending conservatively in the weak economy.

Analysts have questioned the wisdom of CVS's $26 billion 2007 acquisition of Caremark, which provides pharmacy-benefit services to employers.

Shares of Universal American, a provider of health benefit plans based in Rye Brook, N.Y., rose $5.63, or 38.5 percent, to $20.24, while CVS shares fell 2 cents to $34.98 in morning trading.

[Associated Press]

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.