A pharmacy benefit manager has agreed to pay about $4.7 billion for the PBM operations of a large health insurer.
Express Scripts Inc., St. Louis, will be paying cash and up to $1.4 billion in common stock for the NextRx units of WellPoint Inc., Indianapolis, the companies say.
The companies hope to get the regulatory approvals needed to complete the deal sometime between June 30 and Dec. 31.
Express Scripts says it already has firm commitments in place from a group of lenders that will be providing some of the financing.
Express Scripts has provided a debt commitment lender, dated April 9, signed by representatives of Credit Suisse Securities (USA) L.L.C., New York, a unit of Credit Suisse A.G., Zurich; the J.P. Morgan Securities Inc. and JPMorgan Chase Bank, N.A., units of J.P. Morgan Chase & Company, New York; and the Citigroup Global Markets Inc. and Citibank, N.A., units of Citigroup Inc., New York, according to a copy of the deal purchasing agreement filed with the U.S. Securities and Exchange Commission.
The deal price "includes consideration for the value of a future tax benefit for Express Scripts based on the structure of the transaction," according to Express Scripts and WellPoint.
If Express Scripts and WellPoint meet or waive all deal conditions specified in the purchase agreement, and Express Scripts decides on its own to walk away from the deal, it might have to pay WellPoint a $50 million reverse termination payment, according to the purchase agreement text.
Express Scripts, founded in 1986, generated $776 million in net income on $22 billion in revenue by selling PBM services and related products and services to health insurers, employers, benefit plan members and government agencies. It handles about 41 million home delivery prescriptions and 390 million retail pharmacy prescriptions per year, according to a company fact sheet.
WellPoint's NextRx subsidiaries handle PBM services for about 25 million U.S. residents, and they manage about 265 million adjusted prescriptions per year, WellPoint says.
The NextRx deal includes a 10-year contract for Express Scripts to supply PBM services to WellPoint after the deal closes, the companies say.
WellPoint will keep control of medical policy, formulary and integrated disease management, and it will work with Express Scripts to run and improve pharmacy management and data analytics operations, the companies say.
"Our aligned business model, combined with the complementary expertise and capabilities of WellPoint, creates significant opportunities for accelerated growth for both organizations," Express Scripts Chairman George Paz says in a statement about the deal.
WellPoint Chairman Angela Braly says the deal should strengthen WellPoint's ability to integrate medical and pharmacy benefits.
WellPoint says it wants to use $500 million in deal proceeds to reduce debt, $2 billion to buy back shares, and $400 million for "general corporate purposes."
Analysts at Fitch Ratings, Chicago, would like to know more about how WellPoint will use the proceeds, the rating agency says.
WellPoint and its subsidiaries benefit from "strong operating performance, good cash flow, solid combined capitalization of its operating subsidiaries, and very strong competitive position," Fitch says in a comment on the NextRx deal.
But the company also faces "very strong competition in the commercial health sector, ongoing concerns related to unsustainable medical cost trends, and the evolving regulatory and political environment affecting the health insurance and managed care industry," the firm says.