CVS Health in talks to acquire Oak Street for over $10B, analysts see strategic sense

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By Senad Karaahmetovic

Yesterday after the market close, Bloomberg News reported that CVS Health (NYSE:CVS) is in advanced talks to acquire Oak Street Health (NYSE:OSH).

The two sides could agree on a deal that would see CVS pay a premium of about 100% to acquire Oak Street, according to the report. The latter has a market cap of approximately $5.5 billion while CVS is prepared to pay more than $10B to close the deal in the coming weeks.

According to Bloomberg, private equity firms General Atlantic and Newlight Partners collectively own roughly 39% of OSH.

Speaking at a conference yesterday, Oak Street's management hinted that its 2022 results may come in at the high-end or better than its guidance. Moreover, the preliminary guidance for 2023 was also inline-to-better than expectations across key metrics, according to Goldman Sachs analysts.

“While the fundamental updates were encouraging, investor attention will also likely be on M&A,” the analysts wrote in a client note.

Cowen analysts also weighed in positively on the potential acquisition of Oak Street Health by CVS.

“While likely modestly dilutive to 2024 EPS, we believe OSH ticks all the boxes of mgmt's primary care M&A criteria and would provide meaningful scale for CVS as it builds out its capabilities. Our initial accretion/dilution analysis suggests OSH could be up to 2% dilutive to our 2024 adj. EPS est. of $9.78,” they told clients in a note.

OSH stock is up about 33% in pre-market Tuesday on the news.