New Securities Class Action Targets CVS Over Omnicare Merger
The nation's largest pharmacy chain allegedly withheld from investors the scope of the Omnicare acquisition's impact, according to the plaintiffs.
February 25, 2019 at 06:53 PM
3 minute read
CVS, the nation's largest pharmacy chain, faces a class action securities litigation in Manhattan federal court over representations made about its 2015 merger with pharmacy services provider Omnicare.
The lawsuit, filed in the U.S. District Court for the Southern District of New York on Monday, claims that CVS hid the negative financial impact of the Omincare acquisition in the years that followed. On Feb. 20, CVS acknowledged to investors the impact the poor business performance of Omnicare was having on the company, including a $2.2 billion impairment charge.
As the suit notes, CVS stock prices fell be more than 8 percent on the news, closing at $64.22.
Since the acquisition, CVS had touted the positive impact of expanding its business with the merger with Omnicare, according to the suit.
“Given the aging U.S. population, long term care is a growth segment of the health care system,” the company stated at the time of Omnicare's acquisition. “More people are expected to use assisted living facilities and independent living communities in the coming decades, creating a substantial growth opportunity for those companies serving the health care needs of seniors.”
CVS continued to speak positively of the Omnicare merger in its filings with the Securities and Exchange Commission, detailing the growth benefits of the move in its 2016 and 2017 10-K filings.
However, by February 2019, the impact of the Omnicare on CVS' business was being cast in less optimistic terms, as the company told investors that adjusted earnings would be down significantly, in part due to the acquisition.
“The [long-term care] business has continued to experience industrywide challenges that have impacted our ability to grow the business at the rate that was originally estimated when the Company acquired Omnicare, Inc. in 2015,” the company acknowledged.
The plaintiffs are represented by Pomerantz managing partner Jeremy Lieberman, who did not respond to a request for comment on the suit.
A spokeswoman for CVS did not immediately respond to a request for comment.
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