Originally created 12/19/06

Competitors try for Caremark



NASHVILLE, Tenn. - Pharmacy-benefit manager Express Scripts launched a hostile $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, might help reduce 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 and Caremark Rx, which act as middlemen between drug companies and employees, to struggle to reduce costs.

Express Scripts Inc. proposed to pay $29.25 in cash and 0.426 shares of its stock for each share of Caremark stock.

CVS Corp., the nation's largest operator of drugstores and second to Walgreen Co. in sales, said Nov. 1 that it planned to acquire Caremark Rx Inc. for about $21.2 billion in stock. It said that the deal would save $400 million annually.

Express Scripts said its proposed combination with Caremark would save $500 million a year.

Express Scripts officials didn't specify where the additional $100 million in savings would come from, but they expressed confidence in finding it.

"We believe we have the power and the roadmap to find it," said George Paz, the president, CEO and chairman of Express Scripts. "We believe the offer we put on the table is truly a superior deal and we feel it is going to stand on its own two feet."

Nashville-based Caremark said in a statement 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."

Woonsocket, R.I.-based CVS 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.

If the Express Scripts proposal goes through, Caremark stockholders would own approximately 57 percent of the combined company, and Express Scripts stockholders would own about 43 percent.

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," Mr. Speller said.

If the deal is approved, Express Scripts would take on a debt load that would be roughly quadruple its annual cash flow. But Mr. Speller said the company was in a similar position in 1999 after an acquisition and should be able to carry the debt.

THE IMPACT:

If the Express Scripts proposal goes through, it could create the world's pre-eminent pharmacy management company, Express Scripts said.