UPDATE: Feb. 7, 2023: CVS is nearing a $10.5 billion deal for primary care provider Oak Street Health, The Wall Street Journal reported late Monday, citing sources familiar with the matter. The companies are currently discussing a price of around $39 a share for Oak Street. The deal, which includes debt, could be announced as soon as this week.
- CVS Health is exploring an acquisition of value-based primary care chain Oak Street Health, according to a Monday Bloomberg report.
- The two are in ongoing talks and could reach a deal within weeks that values Oak Street at more than $10 billion including debt, according to Bloomberg, which cited sources familiar with the matter.
- Talks could still end without a deal. But shares in Oak Street, which serves mostly seniors on Medicare, rose more than 32% in aftermarket trading following the news.
A $10 billion price tag for Oak Street represents over $40 a share, a premium for the company, which has a current market cap of $5.5 billion. CVS has been shopping around for a primary care operator as it looks to create a vertically integrated healthcare business including physicians, pharmacy, a health plan and more.
Similar chatter around CVS and Oak Street emerged late last year, given CVS’ intentions to buy into primary care. The retail health giant has been increasingly acquisitive, nabbing home health provider Signify Health for $8 billion last year in a deal expected to close in the first half of 2023.
CVS also held talks last year with primary care provider Cano Health on a potential acquisition, though the discussions fell through. On a third-quarter earnings call in early November, CVS management said they are still eyeing possible M&A in the primary care space.
Oak Street, which went public in 2020 and operates 169 centers in 21 states, has maintained it has little interest in a takeover. But the Chicago-based provider is viewed as a ripe acquisition target amid the primary care frenzy, which kicked into high gear in late July when Amazon agreed to buy One Medical for $3.9 billion. Oak Street has seen rapid growth and results from its value-based clinical strategy, but still operates at a loss.
The clinic operator is expected to lose over $200 million in 2023 and not reach profitability until 2025 at the earliest. That could pressure CVS financially should a deal be reached, SVB Securities analyst Whit Mayo said in a Tuesday note.
“Obviously, any consolidated transaction would likely be dilutive to CVS, but timing and FTC considerations could make a potential close further out enough to make potential losses and dilution less meaningful. Still, CVS's 2024 targets would look more challenging to hit,” Mayo wrote.
Representatives for both CVS Health and Oak Street declined to comment on the speculation.