This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

SXC Health Buys Catalyst for $4.4B as Pill Pushers Consolidate (Update 1)

(Updated to reflect analyst comments and additional data)

NEW YORK ( TheStreet) -- SXC Health Solutions (SXCI) is buying Catalyst Health Solutions (CHSI) for roughly $4.4 billion in a cash and stock deal that will continue consolidation in the pharmacy drug benefits manager (PBM) space.

The merger, which values Catalyst Health Solutions at $81.02 a share, or a 28% premium to Tuesday's closing price, comes on the heels of a Federal Trade Commission approval of a blockbuster $29.1 billion acquisition of Medco Health Solutions (MHS) by Express Scripts (ESRX - Get Report) earlier this month that may create the largest player in the space.

After that approval earlier, Express Scripts shares surged on expectations that the tie-up would create higher-than-expected cost savings. Traders initially viewed the latest PBM offer offer as a positive for SXC Health Solutions, pushing its shares nearly 8% higher. Meanwhile, Catalyst Health Solutions shares rose over 31% in Wednesday trading at $83.29.

The latest PBM deal was anything but a surprise on Wall Street.

"We viewed a deal with CHSI as inevitable, given difficulties small PBMs face scaling up their businesses organically that were particularly daunting for CHSI and their common technology platforms," wrote Bank of America Merrill Lynch analyst Robert Willoughby in a Wednesday note to clients.

As a result of competitive challenges to Catalyst Health Solutions reflected in the company's falling profits, Willoughby expected a deal to materialize at lower prices, but reiterated a "buy" rating and $90 a share price target on SXC Health Solutions shares as a result of high expected synergies.

In a Tuesday research note prior to the deal announcement, Goldman Sachs analysts raised their price target of SXC shares to $91 a share on the potential for a tie up between it and Catalyst Health Solutions. "With the Express-Medco merger closed, we expect consolidation to continue as top PBMs vie to close the market share gap," noted Goldman Sachs.

"Under this backdrop, we see SXCI and CHSI as potential M&A candidates given their (1) relative smaller scale...(2) complementary client mix, and (3) synergy opportunities from lagging profitability metrics."

In the cash and stock offer, SXC will pay Catalyst $28 a share in cash and will make the remaining purchase price in a 0.6606 per share stock conversion. While the deal initially values SXC at $81.02, a share price based on Tuesday's close, the near 8% jump in the company's stock to $86.45 in early afternoon trading makes the offer richer.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
MHS $70.30 0.00%
ESRX $89.24 -0.52%
AAPL $126.44 -0.13%
FB $87.28 0.43%
GOOG $523.40 0.30%

Markets

DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASDAQ 5,009.2140 -3.9090 -0.08%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs