In what will become the largest, independent generic-drug sourcing concern in the U.S., according to CVS Caremark (NYSE: CVS ) and Cardinal Health (NYSE: CAH ) , the two sides have signed an agreement to form an equal partnership in which each will source and negotiate favorable generic drug contracts to the benefit of both CVS and Cardinal, the health-services giants announced today.
CVS, as part of the agreement that will initially last for 10 years, will receive annual payments associated with the deal from Cardinal of $25 million. CVS said the after-tax value of the payments, in today's dollars, is equal to $435 million. The deal will require little to no capital outlay from either CVS or Cardinal, the companies said. Instead, the partnership will utilize the "sourcing and supply chain expertise" of each.
The president and CEO of CVS Caremark, Larry Merlo, said, "This partnership will enable us to maintain our leadership role in navigating the dynamic U.S. generics market." Cardinal Health Chairman and CEO George Barrett added, "This venture is an extremely compelling combination where volume and efficiency matter."
CVS Caremark and Cardinal Health also announced that they have agreed to extend their existing distribution contract by three years, to 2019. The distribution deal, which was initially scheduled to expire in 2016, was just renewed in April of this year.
The joint venture is subject to signing final documents and customary closing conditions and should be in place by July 1.