What happened
Shares of Oak Street Health (OSH) were up 32.6% for the week, as of Thursday afternoon, according to data provided by S&P Global Market Intelligence. The company operates 169 medical primary care centers in 21 states for Medicare patients. The stock closed at $26.62 last week and jumped to as high as $35.47 on Wednesday for its 52-week high. It's up more than 89% over the past year.
So what
CVS Health has agreed to pay $10.6 billion to acquire Oak Street. The all-cash transaction translates to $39 a share.
CVS has been focusing more in recent years on beefing up its primary care offerings, and this fits in with its plan. Rivals such as UnitedHealth Group are also scooping up primary care centers as insurers combine to offer more profitable services such as prescription plans and pharmacy services.
Now what
Shares of the healthcare company will likely still go higher, considering CVS's offer. Oak Street will continue to be led by CEO Mike Pykosz following the closing of the transaction, the company said, but with Oak Street becoming part of CVS Health's newly formed healthcare delivery organization. Oak Street has said it plans to have more than 300 clinics by 2026.
The merger with a major company such as CVS will make that growth a little smoother. Oak Street has been increasing revenue but isn't profitable. Through nine months, it reported revenue of $1.58 billion, up 52.8% year over year, but had a net loss of $376.2 million, or an earnings per share (EPS) loss of $1.65. The thought is by combining with CVS Health, Oak Street can continue to boost its revenue while finding some cost synergies.
