Change coming after Omnicare takeover?
- Company has nearly 600 employees at its Downtown headquarters.
- CVS execs say the purchase gets them into a new segment%3A long-term care.
- City officials 'hopeful' that job cuts won't come with the takeover.
Greater Cincinnati is losing one of its prized nine Fortune 500 companies with CVS Health Corp.'s $12.7 billion takeover of Omnicare Inc.
Despite putting a dent in the region's cachet and taking a company's name off a Downtown skyscraper, the deal's other potential impact – on jobs – is unclear. CVS executives told analysts the acquisition makes it a leader in a new business for the company: providing drugs in nursing homes and other long-term care facilities. The deal also boosts CVS' specialty care business that distributes pharmaceuticals to chronically ill patients.
CVS executives dodged questions about potential cost-cutting during a Thursday conference call with analysts. They played up the benefits of bulking up, which should enhance their drug purchasing power. Omnicare officials did not return multiple calls for comment.
"Whenever you lose hundreds of jobs Downtown, it's a significant loss – but we don't know if that's going to happen," said Janet Harrah, the senior director of the Center for Economic Analysis and Development at the Northern Kentucky University.
Omnicare employs nearly 600 people at its Downtown headquarters and has about 13,000 employees at 160 locations in 47 states. Once part of Chemed, Omnicare became an independent company in 1981 and grew rapidly by acquisition into a $6 billion corporation.
In 2011, Omnicare put its name on Cincinnati's skyline when it accepted $8.4 million in tax incentives from Ohio and the city to relocate its headquarters from Covington to Downtown. The company pledged to create 343 jobs and retain 55 positions.
"I am hopeful the acquisition means more employment opportunities in the Cincinnati job market and wish Omnicare, and CVS, all the best in future business endeavors," said Cincinnati City Manager Harry Black.
The job calculus behind combining two drug giants
Companies that take over others often eliminate jobs to cut overlapping departments and workers, analysts say. But deals can also result in job creation, if the buyer has deep pockets and is expanding into a new field.
Analysts say CVS, the biggest U.S. retailer of prescription drugs, is flirting with both in the proposed acquisition of Omnicare. The local company is the nation's leader distributing drugs in nursing homes – new territory for CVS, executives said. Omnicare is the nation's eighth-largest specialty pharmaceutical distributor, which is a market CVS also serves.
CVS CEO Larry Merlo told analysts Thursday the deal would enrich the shareholders of both companies.
"We expect to achieve significant purchasing and revenue synergies as well as additional synergies with this transaction over time," Merlo said.
Asked about potential cost-cutting, CVS chief financial officer David Denton said "it's probably a little premature to go in-depth here."
Omnicare convened and immediately adjourned its annual meeting on Thursday until June 1.
CVS has a lot to consider as it works to integrate Omnicare into its operation, said Jim McGraw, president and CEO of Cincinnati-based KMK Consulting Co.
If CVS were to buy Walgreens, there would be significant time spent figuring out how the companies could co-exist. But McGraw said the deal for Omnicare seems to be about building CVS' strength in a business line.
"How do we protect what's here and (convince them) that it's a good value for them being here," McGraw said.
McGraw said Cincinnati may benefit from CVS' acquisition of Omnicare because of its lower-cost business environment compared to the Northeast United States and the skills and expertise of employees in the area. He hopes the city and economic development group REDI Cincinnati are prepared to make a pitch to CVS officials about the benefits of being located in Cincinnati.
Even with the vanishing of Omnicare as a corporate entity, the region remains a center for major businesses. "We fight above our weight when it comes to companies that want to call this place home and have their headquarters here," said Brian Carley president and CEO of the Cincinnati USA Regional Chamber.
Company made a big impact in short time in Cincinnati
When Omnicare moved its headquarters to Cincinnati, it leased 150,000 square feet of office space. Omnicare consolidated three offices into one with its move Downtown. Company officials told the city the average employee's salary would be nearly $67,000.
Omnicare serves as the signature tenant of the Atrium One building, now called Omnicare Center, at 201 E. Fourth St.
"Business retention is a top priority for our organization," said Johnna Reeder, president and CEO of REDI Cincinnati. "Our goal is to retain every company and job in our region and we work aggressively to do so."
Carley said Omnicare has been a great corporate citizen and the company's CEO, Nitin Sahney, sits on the chamber's board among others. He said CVS was likely attracted to the "great people, systems and processes" that home-grown Omnicare has developed in recent years.
State, city say Omnicare beating job creation promises
It isn't clear what impact Thursday's announcement that CVS is buying Downtown Cincinnati-based Omnicare will have on employment.
But the company has exceeded job creation expectations of the city of Cincinnati and state of Ohio under tax incentive agreements.
Omnicare told the state in 2014 it created 492 new jobs and retained 55 jobs under the agreement, which is slated to expire in 2021, according to information the Ohio Development Services Agency provided to The Enquirer.
ABOUT CVS HEALTH
• Headquarters: Woonsocket, R.I.
• Fortune 500 rank: 12th
• Employees: 137,800
• Revenues (2014): $126.8 billion
• Profits (2014): $4.6 billion
• Notable: Stopped selling cigarettes at its 7,800 retail stores this year
ABOUT OMNICARE
• Headquarters: Cincinnati
• Fortune 500 rank: 415th
• Employees: 13,000
• Revenues (2014): $6.3 billion
• Loss (2014): $43 million
• Notable: Spun off from Chemed back in 1981