Walgreen Co. has hired Bank of America to sell its pharmacy benefits management business (PBM) unit, a source close to the situation said.
The unit, which administers prescription drugs, is expected to fetch between $300 million and $500 million, said the source. Potential buyers were asked to submit first round bids within the last week, said the source.
Walgreen, the largest U.S. drugstore chain, is looking to sell the PBM as it conflicts with its retail model, said the source. Analysts said likely suitors included Medco Health Solutions Inc. and Express Scripts Inc.
In 2007 CVS acquired Caremark. The combination of the retail and PBM models has been criticized by investors as failing to provide the benefits that the companies initially laid out.
Walgreen's move indicates its departure from this model, said the source. In addition, the entire PBM industry has taken several hits this year due to reimbursement pressures.
Pharmacy benefits managers, or PBMs, administer prescription drug benefits for employers and health plans and also operate mail-order pharmacies.
Morningstar analyst Matthew Coffina said a sale by Walgreen would not be a surprise, since the combination of pharmacies and PBMs has not always been a success. Following the merger of CVS and Caremark, the company lost several billion dollars worth of PBM contracts last year.
"From a bigger-picture perspective, we expect this to be a consolidating business going forward," Coffina said about the PBM industry.
JP Morgan analyst Lisa Gill said Walgreen's PBM business processes roughly 90 million adjusted claims a year, well below the 700 million to 900 million processed by its rivals.
She said Medco and Express Scripts would be the most likely front-runners in any auction and that CVS's chances would be low based on its intense rivalry with Walgreen.
She would not entirely rule out Catalyst Health Solutions Inc or SXC Health Solutions Corp., but noted that the valuation discussed would be a much bigger deal than either of them has ever completed.
Express Scripts is ready to strike another deal for a rival PBM business, its chief financial officer said last month.
The Walgreen news was first reported by Bloomberg.
Officials at Bank of America, Walgreen, CVS and Medco declined to comment. Express Scripts, Catalyst and SXC were not immediately available.
Walgreen shares closed up 1 percent at $34.44 on the New York Stock Exchange.
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