WOONSOCKET, R.I. - CVS Caremark Corp. said Friday that it would pay $1.25 billion to buy Universal American Corp.'s Medicare prescription drug services unit.
CVS said it pursued the deal because with the country's population aging, a growing percentage of Americans will get their prescription drug coverage from Medicare.
Universal American said shareholders would get $12.80 to $13 per share in cash and would own a new company operating Universal American's other businesses.
CVS said the deal would more than double the size of its Medicare drug business. Universal American serves about 1.9 million people in the Medicare Part D federally subsidized prescription benefit program for Medicare recipients, while CVS serves 1.2 million.
Woonsocket-based CVS, which operates a chain of drugstores and manages pharmacy benefits, said the deal is expected to close in the second quarter of 2011. The agreement is contingent on approval by Universal American shareholders.
Under the agreement, CVS will acquire all stock in Universal American and give Universal American's shareholders 100 percent of a new public company that will own Universal American's Medicare Advantage and traditional insurance businesses. The new company will have about $640 million in cash and no debt, Universal American said.
CVS' third-quarter profit fell more than 20 percent, to $809 million, as its Caremark unit continued to lose business. Its pharmacy services revenue fell 8.5 percent as private employers canceled contracts and patients defected from its Medicare drug coverage plans.
Shares of Universal American, a provider of health benefit plans based in Rye Brook, N.Y., rose $5.84, or 39.97 percent, to $20.45 on Friday, while CVS shares fell 23 cents, or less than 1 percent, to $34.77.