VALUATION (Medfield Pharmaceutical session)

by | Mar 13, 2023 | finance

 

 

VALUATION (Medfield Pharmaceutical session)
Consider the current sale of Oak Street Health to CVS as discussed in the attached article in Appendix B.
[a] How can you explain the purchase price by CVS of $10.6 billion (i.e., $39 per share–a 50% premium over the prior equity value of Oak Street) when they are still losing $200 million each year?
[b] How can each site of Oak Street do so well when their customers are almost all covered by Medicare and Medicaid and come from largely disadvantaged populations?
[c] How can you determine a total market value for a firm like this and what is the source of it? Would you buy more stock at the current price or sell what you have for $39 per share? Why?

 

 

 

Sample Solution

The purchase price of $10.6 billion (or $39 per share) that CVS paid for Oak Street Health appears to be largely driven by the potential future value they are foreseeing in this acquisition. Despite Oak Street Health still losing money ($200 million each year), there is strong evidence that their business model has been a success and will continue to be successful going forward given the right conditions.

Sample Solution

The purchase price of $10.6 billion (or $39 per share) that CVS paid for Oak Street Health appears to be largely driven by the potential future value they are foreseeing in this acquisition. Despite Oak Street Health still losing money ($200 million each year), there is strong evidence that their business model has been a success and will continue to be successful going forward given the right conditions.

Oak Street Heath’s success can be attributed to their ability to tap into under-served markets, such as those covered by Medicare and Medicaid or those from disadvantaged populations who may not have access to traditional healthcare resources. In addition, they have successfully developed an efficient and cost effective care delivery system which allows them operate more profitably than other less specialized medical providers despite much lower reimbursement rates from insurers.

To determine a total market value for a firm like Oak Street, one would need to consider various factors such as past financial performance, future growth prospects & profitability measures amongst others . It is then possible use these indicators help decide whether or not it make sense buy more stock at current market prices or sell what one already holds for $39 per share (or some other price). Ultimately decision comes down weighing up all available information & deciding upon whether current market prices offer good value relative what individual investor\’s own expectations/prospects are relative same company

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