CVS Health to acquire Oak Street Health for $10.6B

CVS Health and Oak Street Health have entered into a definitive agreement under which the retailer will acquire Oak Street Health in an all-cash transaction at $39 per share, representing an enterprise value of approximately $10.6 billion.

Oak Street Health is a leading multi-payor, value-based primary care company helping older adults stay healthy and live life more fully. With an innovative care model and technology platform designed to deliver consistently superior outcomes and patient experiences, Oak Street Health has demonstrated that its model is scalable.

Bringing CVS Health and Oak Street Health together can significantly benefit patients' long-term health by reducing care costs and improving outcomes — particularly for those in underserved communities. Oak Street Health centers are located where health care services are needed most; more than 50% of the primary care company's patients have a housing, food or isolation risk factor, the companies said.  

"Combining Oak Street Health's platform with CVS Health's unmatched reach will create the premier value-based primary care solution," said CVS Health president and CEO Karen Lynch. "Enhancing our value-based offerings is core to our strategy as we continue to redefine how people access and experience care that is more affordable, convenient and connected."

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Oak Street Health employs approximately 600 primary care providers and has 169 medical centers across 21 states. Oak Street Health is differentiated by its leading technology solution, Canopy, which is fully integrated with its operations and utilized when determining the appropriate type and level of care for each patient. The care will be enhanced by CVS Health's community, home and digital offerings, the companies said.

"This agreement with CVS Health will accelerate our ability to deliver on our mission and continue improving health outcomes, lowering medical costs, and providing a better patient experience while offering significant value to our shareholders," said Oak Street Health CEO Mike Pykosz. "Together with CVS Health, we will have access to greater resources and capabilities to expand the reach of our platform, provide more opportunities for our teammates and, most importantly, make a meaningful difference in the lives of the patients we serve."

Following the close of the transaction, Pykosz will continue to lead Oak Street Health, which will become part of CVS Health's recently formed Health Care Delivery organization. In addition, the primary care company will continue to serve its extensive network of health plan partners and patients — consistent with CVS Health's payor-agnostic approach to delivering leading solutions, the company said.

CVS Health will acquire Oak Street Health's outstanding shares for $39 per share in cash, representing an enterprise value of approximately $10.6 billion. CVS Health expects to fund the transaction through available resources and existing financing capacity and is committed to maintaining its current credit ratings. The transaction was approved by the board of directors at each of the respective companies and is subject to approval by a majority of Oak Street Health's stockholders, receipt of regulatory approval and satisfaction of other customary closing conditions.

Private equity funds affiliated with Newlight Partners and General Atlantic and certain members of the Oak Street Health board of directors, which collectively own approximately 45% of the common stock of Oak Street Health, have agreed to vote the shares they own in favor of the transaction, subject to customary exceptions. CVS Health and Oak Street Health anticipate that the transaction will close in 2023.

"Oak Street Health is a premier value-based primary care platform," said CVS Health chief financial officer Shawn Guertin. "We believe that in partnership with CVS Health, Oak Street Health can accelerate its growth and provide an attractive return to our shareholders over time. The pending acquisitions of Oak Street Health and Signify Health will also meaningfully advance our goal of adding 200 basis points of long-term adjusted operating income growth, a key commitment we made to shareholders at our December 2021 Investor Day."

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By 2026, Oak Street Health will have more than 300 centers, each of which has the potential to contribute $7 million of Oak Street Health adjusted EBITDA at maturity, representing more than $2 billion of Oak Street Health embedded adjusted EBITDA at that time. Additionally, CVS Health projects more than $500 million in synergy potential over time, enhancing CVS Health's long-term adjusted operating income growth.

CVS Health continues to project that it will achieve 2023 adjusted EPS in the range of $8.70 to $8.90. CVS Health is now targeting 2024 adjusted EPS of approximately $9.00, growing to approximately $10 in 2025, with an upside in 2025 based on the successful resolution of its Medicare Stars rating mitigation efforts. The 2024 and 2025 adjusted EPS trajectories reflect the impact of the previously disclosed 2024 Medicare Stars rating headwind and Centene contract loss, the closing of the Oak Street Health transaction in 2023, as well as projected contributions from the pending Signify Health transaction in 2024 and beyond. Consistent with past practice, CVS Health expects to exclude integration and transaction costs from its adjusted EPS presentation.

Credit Suisse Securities (USA) and Lazard are serving as co-financial advisors to CVS Health. CVS Health was advised on legal matters by Shearman & Sterling,  Dechert and McDermott Will & Emery. Centerview Partners is serving as financial advisor for Oak Street Health and Kirkland & Ellis is acting as Oak Street Health's legal advisor.