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DaVita-Fresenius Extend Ties

DVA FMS

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Earlier this week, DaVita HealthCare Partners Inc. (DVA - Analyst Report) announced the acquisition of 9 dialysis centers from rival Fresenius Medical Care AG & Co. KGAA (FMS - Snapshot Report). Of these, 5 are situated in Portugal, while the remaining 4 are in Poland.

The acquisition is a part of DaVita’s efforts to expand its presence in Europe. Since 2011, the company is slowly expanding in the international markets with the primary focus on Europe and Asia. The company has entered Singapore, Malaysia, Saudi Arabia, China, India and Germany in the past two years through acquisitions and alliances.

In addition, DaVita also announced a service agreement with Fresenius during the week. Under the agreement, the kidney care division of DaVita will provide DaVita Rx prescription drug services to the Medicare patients of Fresenius in the U.S. The agreement will be implemented in the second half of 2013.

The agreement will help Fresenius meet the regulatory requirement of including all oral end stage renal disease medications in the bundled payment system from 2016. The company will use DaVita Rx’s state-of–the-art pharmacy supply oral medicines to its Medicare beneficiaries. The agreement is expected to boost the earnings of DaVita’s ancillary services and strategic initiatives segment, which covers its pharmacy services.

Concurrently, DaVita also announced the extension of its vendor relationship with Fresenius. The company has been purchasing dialysis supplies such as hemodialysis machines and disposable products from Fresenius for a long time.

DaVita currently carries a Zacks Rank #2 (Buy), while Fresenius carries a Zacks Rank #3 (Hold). We maintain a long-term Outperform recommendation on DaVita.

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