UnitedHealth Acquires Catamaran, Creating a Top-Tier PBM

On March 30,  UnitedHealth (UNH) and  Catamaran (CTRX) announced a merger agreement between United's OptumRx pharmacy benefit management unit and all of Catamaran's operations. Overall, we believe this transaction makes complete sense and is a positive for both firms, given the power and advantages that large PBMs possess along the pharmaceutical supply chain. The combined entity will process approximately 1 billion prescription claims annually and become the third-largest PBM in the nation following  CVS (CVS) (1.1 billion annual claims) and  Express Scripts (ESRX) (1.3 billion annual claims). After analyzing the deal, we don't plan on making changes to our fair value estimate for either firm.

The acquisition is all cash, with United paying Catamaran shareholders approximately $12.8 billion, or $61.50 per share. While this represents a 27% premium to Catamaran's $48.32 March 27 closing price, we believe the purchase price is largely acceptable for shareholders of both firms, given our $64 fair value estimate for Catamaran. However, the lack of a premium purchase price over our fair value for Catamaran suggests United is getting a slightly good deal. The transaction is anticipated to close in the fourth quarter. 

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