Omnicare Inc (OCR) disclosed that it has inked an Accelerated Share Repurchase (ASR) agreement with Goldman, Sachs & Co. to buy back up to $250 million of its common stock. The agreement will seamlessly strengthen Omnicare’s effort to enhance shareholder’s return.
The deal is part of Omnicare’s existing share repurchase authorization which had approximately $498 million available at the end of the third quarter 2012. Per the agreement, Omnicare will receive roughly 5.8 million shares at the start. The final count of the shares repurchased will depend on the end settlement.
The transaction will be funded by Omnicare’s cash on hand and/or cash flow from operations. In the third quarter, the company returned about $45.8 million of capital (23.2% of cash flow from operations) to shareholders via dividends and share repurchases. Year-to-date, Omnicare has repurchased 3.4 million shares with 0.9 million shares ($30.6 million) bought back in the most recent quarter.
The two-fold increase in dividend to 14 cents per share in the third quarter should encourage investor sentiment. The improvement in the company’s cash position made the capital deployment possible, as required towards increased shareholder value via dividend hikes and share repurchases.
Over the years, Omnicare has been committed to value creation for its shareholders. On an average, the company has returned almost 18% of cash flow from operations to stockholders in the last five years.
In 2011, Omnicare committed to return 25% of its operating cash flow to its stockholders. It surpassed its goal in 2011 by returning 28.6%. Looking at the increased forecast for annual cash flows in the range of $500 million to $550 million as well as the company’s track record of enhancing value, returning 25% of its operating cash flow to stockholders in 2012 does not seem like an uphill task.
This agreement should be accretive to Omnicare’s bottom line and help it attain its goal of a high single-digit compound annual growth rate (CAGR) for EPS through 2013. However, Omnicare should be aware of similar actions made by its peers such as PharMerica Corporation (PMC) and National Healthcare Corp. (NHC). We have a long-term ‘Neutral’ recommendation on Omnicare which carries a short-term Zacks #2 Rank (Buy).
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