What happened
Shares of Evolent Health (EVH +1.66%) have been surging all week thanks to a circulating buyout rumor. On Wednesday, Bloomberg reported a rumor that Walgreens Boots Alliance (WBA +0.00%) is weighing an acquisition of the struggling healthcare administrator.
Neither company has officially commented but that hasn't stopped the healthcare stock from rising. Shares of Evolent finished Thursday up 18.8% from its closing price last Friday.
Image source: Getty Images.
So what
In June, AmerisourceBergen (ABC 3.19%) bought Alliance, a European drug distribution business that Walgreens picked up years ago, along with Boots, a large international chain of retail pharmacies. AmerisourceBergen paid $6.275 billion in cash for Alliance, which leaves Walgreens with plenty of resources to accelerate the pharmacy chain's growth strategy.
Evolent Health helps healthcare providers adapt to accountable care models brought about in the U.S. by the Affordable Care Act. In a nutshell, providers receive fixed sums based on how much it normally costs to treat specific conditions like heart attacks and lung cancer.
Now what
Under accountable care models, unnecessary tests and procedures rapidly eat into healthcare providers' profit margins. Offering integrated healthcare services at its chain of pharmacies has long been one of Walgreens' U.S. growth initiatives.
Evolent Health has never been able to turn a profit on its own. Folding the operation into its larger business could allow Walgreens to offer a wider array of services without risking heavy losses in the process. With a market cap of around $2.7 billion at recent prices, it's also within Walgreen's means.
