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CVS Caremark to purchase Universal American's Part D business

CVS Caremark has announced plans to purchase Universal American's Medicare Part D business for approximately $1.2 billion.

CVS executives said the agreement should strengthen Caremark's position in the fast-growing Medicare market and provide beneficiaries with lower cost pharmacy care.

Based in Rye Brook, N.Y., Universal American is a leading Medicare Prescription Drug Plan sponsor. The acquisition will more than double the size of CVS Caremark's Medicare Part D program, officials said.

Universal American's Part D business serves approximately 1.9 million Medicare PDP members, officials said, while CVS Caremark serves approximately 1.2 million Medicare PDP members, not counting those assigned through 2011 auto assignment or the results of the annual enrollment period ending on Dec. 31, 2010.

"Today's transaction furthers CVS Caremark's position as a significant player in one of the nation's fastest growing segments of the Pharmacy Benefit Management industry," said Per Lofberg, president of Caremark pharmacy services. "A growing portion of the country's population will receive their prescription drug coverage under Medicare plans, driven both by age demographics and the anticipated shift of retirees from employer based coverage to Medicare that will likely result from healthcare reform."

According to Lofberg, the Medicare Part D program is integral to CVS Caremark's long-term growth strategy.

"We believe that bringing together these two businesses will strengthen our competitive offerings, enabling us to provide Medicare beneficiaries with expanded products and services and lower the cost of pharmacy care," he said.

CVS Caremark officials said the transaction would be accretive to earnings per share in its first full year. The company is focusing on improving shareholder returns, they said, and the acquisition is consistent with the company goal of investing in core businesses that help drive growth and improve returns on invested capital. This transaction is not expected to impact the company's previously announced dividend growth and share buyback initiatives.

Upon completion of the transaction, CVS Caremark will become one of the nation's largest providers of prescription drug services for Medicare beneficiaries enrolled in Medicare Part D, Lofberg said.

CVS Caremark will provide further details about the financial aspects of the transaction when it provides 2011 earnings guidance on its fourth quarter 2010 earnings call, scheduled for Feb. 3, 2011.

The transaction is subject to customary closing conditions, including necessary regulatory approvals, and is expected to close by the end of the second quarter, CVS Caremark said.