DUBLIN, Ohio, and WOONSOCKET, R.I., Dec. 10, 2013 /PRNewswire/ -- CVS Caremark (NYSE: CVS) and Cardinal Health (NYSE: CAH) today announced the signing of an agreement to form the largest generic sourcing entity in the U.S., which is the world's largest generic drug market. Both companies are contributing their sourcing and supply chain expertise to this 50/50 joint venture and are committing to source generic drugs through it. The companies separately announced a three-year extension through June 2019 of Cardinal Health's existing pharmaceutical distribution agreements with CVS Caremark.
The U.S.-based joint venture is expected to be operational as soon as July 1, 2014, and will have an initial term of 10 years. Under this arrangement, the joint venture will source and negotiate generic supply contracts for both Cardinal Health and CVS Caremark. In order to reflect an equitable 50/50 joint venture, the agreement includes a quarterly payment of $25 million over the life of the agreement from Cardinal Health to CVS Caremark. The payments have an estimated after-tax present value of $435 million. No physical assets (e.g., property, plant or equipment) are being contributed by either company to the joint venture, and minimal funding is being provided to capitalize the entity. The venture is subject to the completion of final documentation and customary closing conditions.
CVS Caremark is the largest pharmacy health care provider in the U.S. Last year, the company filled more than a billion prescriptions through its retail and mail order pharmacies. Cardinal Health is a leading health care services company and an essential link in the health care supply chain, providing pharmaceuticals and medical products to more than 100,000 provider and pharmacy locations each day. The joint venture will maintain CVS Caremark and Cardinal Health's leadership positions as they drive value for their customers, clients and shareholders in a capital-efficient manner.