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Second suitor ups Caremark bid

Express Scripts offers $5-billion more than CVS for the pharmacy-benefit manager .

By ASSOCIATED PRESS
Published December 19, 2006

NASHVILLE - Pharmacy-benefit manager Express Scripts launched an unsolicited $26-billion bid Monday to acquire its larger competitor Caremark Rx, potentially scuttling a competing offer from the CVS drugstore chain. The deal, if approved, may help cut drug prices for consumers.

The race to consolidate in the drug industry comes as the pressure to lower prices is growing. Wal-Mart Stores Inc. recently announced it would sell some generic drugs for $4, and rival retailer Target Corp. has a similar program. That leaves companies such as Express Scripts that act as middlemen between drug companies and employees to struggle to reduce costs.

CVS Corp., the nation's largest operator of drugstores and second to Walgreen Co. in sales, said on Nov. 1 that it planned to acquire Caremark for about $21.2-billion in stock. It said the deal would save $400-million annually. Express Scripts said its proposed combination with Caremark would save $500-million a year.

Express Scripts, based in St. Louis, has a major administrative facility in Orlando. Caremark has a mail-order pharmacy in Miramar.

Though CVS is known for its 6,200 drugstores, with more than 660 in Florida, the company has a mail-order drug business, PharmaCare, which includes the former Eckerd Health Services.

For the past two years, CVS has leased space in Eckerd's former headquarters in Largo for about 400 employees of the PharmaCare mail-order operation.

Express Scripts Inc. proposed to pay $29.25 in cash and 0.426 shares of its stock for each share of Caremark Rx Inc. The company said that equals $58.50 per Caremark share, based on Express Scripts' closing price Friday.

Shares of Caremark rose $5.28, or 10.5 percent, to close at $55.58 on the New York Stock Exchange, and Express Scripts shares rose $1.31, or 1.91 percent, to close at $69.97 on the Nasdaq Stock Market.

Caremark of Nashville said in a statement on Monday that it continues to be bound to the merger agreement with CVS Corp. and that "the parties anticipate filing a joint proxy statement with the Securities & Exchange Commission shortly."

CVS of Woonsocket, R.I., issued a statement saying the company hasn't had an opportunity to review the Express Scripts offer but added that it has a "definitive" agreement with Caremark.

"We believe the prospects for completing that transaction are excellent and we remain confident in the long-term strategic value of our combination as well as the benefit to shareholders of CVS and Caremark," the statement said.

CVS shares fell 51 cents, or 1.67 percent, to close at $30.01 on the New York Stock Exchange on Monday.

If the Express Scripts proposal goes through, Caremark stockholders would own approximately 57 percent of the combined company, and Express Scripts stockholders would own approximately 43 percent. The combination will create the world's pre-eminent pharmacy-benefit management company, Express Scripts said.

Andrew Speller, an analyst with A.G. Edwards & Sons in St. Louis, said the deal would help Express Scripts gain market share in an industry where size and scale are critical.

"Any time you have an opportunity to get bigger, that is a positive situation," Speller said.

If the deal is approved, Express Scripts would take on a debt load that would be roughly quadruple its annual cash flow.

Times staff writer Kris Hundley contributed to this report.

[Last modified December 19, 2006, 00:41:45]