Credit Suisse Downgrades Omnicare, Addresses M&A Talk

In a report published Thursday, Credit Suisse analysts downgraded the rating on Omnicare, Inc. OCR, while raising the price target from $85 to $91. Bloomberg reported that Omnicare was working with financial advisors to explore a potential sale of the company. The article suggested the sale process was at an early stage and a deal may not be reached. In the report Credit Suisse noted, "…we believe the strategic rationale for a number of deep pocketed pharma supply channel players to partner with Omnicare makes sense. We believe OCR's specialty pharmacy and manufacturer services business is one of the coveted assets in the industry, with the bigger slower growing LTC pharmacy business generally less attractive. So while we agree with the strategic rationale for a deal, we struggle with the timing and the valuation." In 2014, the company transitioned its CEO. This indicated the absence of any imminent transaction. In November last year, Omnicare inked a five-year prime vendor agreement with McKesson Corporation MCK. This could limit "near-term purchasing synergies for a prospective supply channel buyer," the analysts explained. In view of the strategic value that Omnicare can bring to various companies in this segment, the analysts believe that a sale is possible and can "still be accretive for a number of players." However, given the share price, the "potential for a large premium is becoming harder to justify," the analysts wrote, while adding, "As such, at these levels and elevated deal speculation, we believe the shares have a more balanced risk reward.