BioScrip signs definitive agreement to acquire Critical Homecare Solutions

“The acquisition of CHS is a transformative event for BioScrip and is consistent with our growth strategy to expand our geographic reach, increase gross profit, operating income and EBITDAO margins, and to become the clinical leader in infusion, oral and injectable specialty pharmacy services and care management programs,” said Richard H. Friedman, Chairman and Chief Executive Officer of BioScrip. “As a result of the transaction, BioScrip will become one of the largest home infusion providers in the United States with a stronger and broader clinical services infrastructure. The CHS acquisition will add 35 specialty infusion pharmacies, including 16 Ambulatory Treatment Centers (ATC) across 22 states, and 33 nursing locations to BioScrip’s existing platform. With CHS, we will be positioned to offer a comprehensive national integrated solution for pharmacy and clinical management services, capable of handling all delivery technologies for our key constituencies – patients, payers, physicians and pharmaceutical manufacturers.”

CHS generated approximately $252.0 million of revenue and approximately $39.0 million of adjusted EBITDA, or 15% of revenue, for the trailing twelve month period ending September 30, 2009. On a pro forma basis, the combined company generated approximately $1.6 billion in revenue and $73.4 million of adjusted EBITDAO for the trailing twelve month period ending September 30, 2009.

Key Benefits of the Transaction Include:

• Ability to cross-sell all services on a national basis, enabling accelerated pull-through opportunities;
• Expanded national footprint with strong regional and local management leadership;
• Focus on traditional higher margin therapies, resulting in overall increased margins;
• Broadened clinical expertise;
• Comprehensive nursing component to better manage the chronically ill;
• Access to 450 additional payor relationships;
• Annual cost savings of $5.0 to $7.0 million, including enhanced volume purchase discounts.

Transaction Details

Under the terms of the agreement, BioScrip will acquire CHS for a total of $343.2 million in cash and stock. The consideration will include cash of $242.0 million (including approximately $132.0 million to repay CHS debt) and the issuance of $101.2 million of common stock, or approximately 12.94 million shares (based on BioScrip’s closing stock price of $7.82 on Friday, January 22, 2010). BioScrip will also issue 3.40 million warrants with a $10.00 exercise price and five-year term to CHS shareholders.

Jefferies Finance LLC has provided a $375 million financing commitment, including a $50 million revolving credit facility, which is expected to be substantially unfunded at close of the transaction. The transaction is expected to be financed through a combination of bank financing and the issuance of senior notes.

Kohlberg & Company, L.L.C., a leading U.S. private equity firm, and controlling shareholder of CHS, will hold approximately 24% of BioScrip’s common stock on a fully diluted basis and will be entitled to nominate two directors to join the Company’s Board upon closing of the transaction. Gordon Woodward, a partner with Kohlberg & Co., stated, “CHS’s market leadership in home infusion, combined with the complementary expertise and capabilities of BioScrip, creates significant opportunities for accelerated growth as a merged entity for years to come.”

The acquisition requires the approval of BioScrip’s stockholders and is subject to regulatory approvals and other closing conditions, including the expiration of the waiting period under the Hart-Scott-Rodino. The transaction is expected to close by March 31, 2010.

Jefferies & Company, Inc. is acting as BioScrip’s exclusive financial advisor for this transaction.

Financial Guidance

Assuming a closing date of March 31, BioScrip’s 2010 financial results would include 9 months of CHS’s operations. The combined company is expected to generate revenues in 2010 of approximately $1.67 to $1.73 billion, gross profit of $267.0 to $277.0 million, or approximately 16% percent of sales, and adjusted EBITDAO of $67.0 to $71.0 million. The increased volume, access to high margin therapies and operating synergies available to the combined companies are expected to provide significant increases in revenue, an estimated 600 basis point improvement in gross margins and an estimated 200 basis point improvements in EBITDAO.

The transaction is expected to be modestly accretive to earnings per share on a cash basis and slightly dilutive on a GAAP basis in 2010. Cash and GAAP earnings per share accretion is expected in 2011 and beyond.