Catamaran takeover bid by UnitedHealth gets thumbs up at Cantor Fitzgerald

The proposed OptumRx (UnitedHealth Group) offer to buy Catamaran (Catamaran Stock Quote, Chart, News: TSX:CCT, Nasdaq:CTRX) is a good deal for both parties, says Cantor Fitzgerald Canada analyst Justin Kew.

In a research update to clients this morning, Kew moved his rating on Catamaran to “Tender” from “Buy” and raised his target price on the stock to the offer price of $61.50, from his previous $60.00.

This morning, Catamaran and UnitedHealth Group announced that Catamaran and OptumRx, UnitedHealth’s free-standing pharmacy care services business, had agreed to merge.

“Our board of directors carefully considered a variety of strategic options and unanimously concluded that this combination is clearly in the best interests of our shareholders,” said Catamaran CEO Mark Thierer. “The creation of a differentiated, channel-agnostic delivery model will provide payers and individuals a broader portfolio of services and a deeper product offering while aggressively focusing on managing costs. Together, we believe we will have the talent, scale, technology resources and innovative spirit to build the most modern, effective and consumer-focused PBM in the history of the industry.”

Kew says the 17x TTM EV/EBITDA and 14x FTM EV/EBITDA valuation of the deal is attractive for Catamaran shareholders. He also thinks the scenario of other bidders arising is unlikely because of potential antitrust issues from Express Scripts and CVS Caremark, given the size of their respective market shares.

The analyst says today’s deal effectively creates a third major player in the Pharmacy Benefit Management space.

“The CTRX acquisition will more than double OptumRx’s script count from 0.4 billion to 1.0 billion scripts per year. We estimate that OptumRx’s market share (by script count) increases from 14% to 23%, moving it to the third largest PBM behind CVS Caremark at 25% and Express Scripts at 31%.,” he said.

The proposed purchase price of $61.50 per share in cash is a 27% premium to Catamaran’s Friday’s close of $48.35.