UnitedHealth buys Catamaran for $12.8 bn

UnitedHealth Group said Monday it will acquire smaller rival Catamaran for $12.8 billion, in a move they said would give them more pricing power in the pharmacy benefits business.

UnitedHealth will combine Catamaran with its own pharmacy benefit manager (PBM) OptumRx, which would propel the combined company to third place in the industry behind Express Scripts and CVS Caremark.

"This combination is expected to create a dynamic competitor in the PBM market by combining the strengths of Catamaran's industry-leading technology platform with the data and analytics capabilities of Optum," the two said in a statement.

Pharmacy benefits managers manage prescription drug claims between health insurers and insurance plan members.

Through their negotiations with drug suppliers, drug costs to insured patients can be heavily discounted from the sticker price.

UnitedHealth will pay $61.50 per share for Catamaran, a 27.3 percent premium over Catamaran's closing price Friday. In early trade Monday Catamaran shares were up 24.3 percent at $60.05, while UnitedHealth gained 3.7 percent to $122.39.

UnitedHealth it will finance the deal using available cash and new debt, and expects it to be completed by the end of this year.

The two companies together expect to fill one billion prescriptions in 2015, which "will enable the combined entity to be a competitive force in the PBM industry" and bring down drug costs for clients, they said.

The industry currently brings in $100 billion in revenues annually, a figure expected to quadruple by 2020, according to UnitedHealth.

"Catamaran's capabilities are impressive and their leadership team has delivered the fastest growth in the industry," Optum chief executive Larry Renfro said in a statement.

"We believe the combination of the two companies will create a unique offering in the industry unparalleled by current participants."