VillageMD, the primary care provider controlled by Walgreens Boots Alliance Inc., has agreed to acquire Summit Health-CityMD in an $8.9 billion deal that shows the pharmacy operator is growing further in healthcare services to reduce its reliance on retail.
Walgreens, which has a 63% stake in VillageMD, said it would invest $3.5 billion in debt and equity to support the combination and would remain the combined company’s largest shareholder with a 53% stake after the closing of the deal, according to a statement. Evernorth, a subsidiary of Cigna Corp., is also investing in and will hold a minority stake in the combined entity. The announcement confirms a Bloomberg News report last month that VillageMD was exploring a combination with Summit Health-CityMD.
The agreement, which is expected to close in the first quarter of next year, will create one of the largest groups of independent physicians in the United States providing primary care, specialty care and emergency care, the statement said. . This gives VillageMD a deeper footprint in the New York metro area, the nation’s largest healthcare market, and helps it grow in specialty care.
Walgreens said the deal will help its U.S. healthcare segment achieve profitability sooner than expected, according to the statement.
Walgreens is pushing further into health care to reduce reliance on its retail pharmacy business as online rivals like Amazon.com Inc. cut sales of homewares and beauty products. Walgreens had in recent years doubled its retail business, unlike CVS Health Corp., which bought an insurer, a pharmacy benefits manager and plans to acquire home-care company Signify Health.
“This whole push toward services is their effort to minimize basic reliance on pharmacy and add elements that cross the continuum of care and make patients and customers more adhesive to the Walgreens platform as a whole,” said Bloomberg Intelligence analyst Jonathan Palmer said in an interview.
The Big Steps of Pharmacy Chains in Healthcare
The purchase comes as pharmacy chains, insurers and even retailers have moved deeper into caring for patients, positioning themselves as entry points to the healthcare system. UnitedHealth Group Inc., the largest US insurer, has brought together a giant healthcare delivery arm in its Optum division with more than 53,000 physicians. And Amazon is buying 1Life Healthcare Inc., the parent company of the One Medical chain of primary care clinics.
Investors can expect more consolidation as big consumer companies seek to play a bigger role in the health of their customers, said Neil Saunders, an analyst at research firm GlobalData.
Under chief executive Roz Brewer, Walgreens added primary care centers to its U.S. outlets, partnered with health insurers, and bought out its remaining stakes in CareCentrix and Shields Health Solutions. In October, he appointed John Driscoll, CEO of CareCentrix, as president of Walgreens’ US healthcare unit. This follows the decision by healthcare companies to combine insurance, healthcare delivery and pharmacy assets into vertically integrated entities.
Last year, Walgreens agreed to more than double its stake in VillageMD to 63% from 30% by investing $5.2 billion. It first invested in the company in 2020 with the aim of building up to 700 primary care clinics in its pharmacies. He said last year he would raise the number to 1,000 by 2027.
Summit Health, formed in 2019 by the merger of Summit Medical Group and CityMD, has about 750 primary care providers and 1,200 specialty care providers, while CityMD has about 150 urgent care centers, according to a presentation published by Walgreens. . According to its website, it has locations in New Jersey, New York, Connecticut, Pennsylvania, and Oregon.
Warburg Pincus, a New York-based private equity firm, acquired CityMD in 2017 and took a majority stake in Summit after the 2019 merger, according to a statement at the time.
“Summit Health-CityMD joining VillageMD is transformational for our U.S. healthcare segment and reinforces our intent to create greater access to quality healthcare across the continuum of care,” Brewer said in a statement. “This transaction accelerates growth opportunities through a strong market presence and an extensive network of providers and patients in primary, specialty and urgent care,” she added.
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