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$528-Million Stock Transaction : Caremark Agrees to Become a Subsidiary of Baxter Travenol

May 12, 1987|CARLA LAZZARESCHI | Times Staff Writer

Moving to create a major presence in the nation's exploding home health-care market, Caremark of Newport Beach and Baxter Travenol Laboratories Inc. said Monday that they have agreed to merge operations in an all-stock deal valued at $528 million.

Caremark, already a leader in the at-home intravenous therapy industry, will be responsible for the companies' combined efforts in that rapidly growing market. The service involves preparation and home delivery of medicines and nutritional supplements for intravenous use.

Baxter Travenol, a major pharmaceuticals and medical supplies manufacturer, recently entered the at-home intravenous therapy market.

While industry analysts praised the deal as beneficial for both companies, nervous investors drove the price of Baxter Travenol's shares down 5.5% to $23.50 on the Big Board, while boosting the value of Caremark's common stock by almost 16% to $20 a share over the counter. More than 2 million shares of each stock were traded.

The agreement, still subject to federal antitrust review, calls for Caremark, which will retain its Newport Beach offices and staff, to become a wholly owned subsidiary of the Deerfield, Ill.-based, $5.5-billion-a-year health-care giant.

Analysts said the new subsidiary, which will have annual sales of about $400 million to $500 million, would be among the nation's largest at-home health-care operations.

Terms of the merger call for an exchange of $21.33 worth of Baxter Travenol common stock for each Caremark common share. Caremark is not obliged to complete the transaction if the average trading price of Baxter Travenol stock falls below $20 per share during a 10-day period just before the scheduled close of the deal Sept. 1.

Although admitting surprise at the move, Wall Street analysts uniformly praised it, noting that it represents a combination of two strong companies looking to strengthen their positions in what is expected to be a $3-billion-a-year home health-care market by the beginning of the 1990s.

"It makes a lot of sense," said Kenneth Abramowitz, an analyst with the New York securities firm of Sanford C. Bernstein. "It's better to have one very strong company than two reasonably strong ones."

According to Abramowitz's estimates, Baxter Travenol's home health operations will generate about $675 million this year, and Caremark will post sales of about $200 million.

The at-home health-care market is one of the fastest growing in the otherwise beleaguered health-care industry, with annual expansion rates of 20%, according to analysts who attribute the growth rate to continuing pressure from insurance companies, governmental agencies and corporations to hold down spiraling health-care costs.

In its eight-year history, Caremark has established itself as a leader in the intravenous nutritional and drug therapy segment of the market, a niche that analysts estimate generates annual sales of about $750 million.

The company, which posted earnings of $10.2 million on sales of $133.2 million in the fiscal year ended June 30, also operates the highly respected Health Data Institute, a subsidiary that supplies management and cost-accounting systems to health insurance companies and corporate benefits programs.

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