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Caremark Rx rejects bid by Express Scripts

The pharmacy benefit firm says the unsolicited proposal, though higher than CVS' offer, makes no strategic sense.

January 09, 2007|From Reuters

Pharmacy benefit manager Caremark Rx Inc., which plans to be acquired by drugstore chain CVS Corp. for $22.2 billion, rejected a $26-billion unsolicited bid from rival Express Scripts Inc. late Sunday, setting the stage for a lengthy takeover battle.

In response, Express Scripts said it would nominate four directors to Caremark's board and also made antitrust regulatory filings to acquire stock in the company.

Express Scripts also said it had commitment letters from Citigroup and Credit Suisse showing it could fully finance its cash-and-stock offer.

Express Scripts said it would prefer to meet with the Caremark board and management to negotiate a deal, but it was taking action in light of Caremark's rejection and refusal to discuss the offer.

Caremark said late Sunday that the unsolicited Express Scripts stock-and-cash proposal "does not constitute, and is not reasonably likely to lead to, a superior proposal."

The Express Scripts proposal, Caremark said, lacked strategic rationale, faced significant antitrust risks and potential delays in closing the deal, and carried the risk of a hefty debt load for the combined company.

"If it was just price, they could try to throw in a few dollars. But they were told [by Caremark] that a deal with them made no strategic sense, so they have to fight at a strategy level -- at the board and management level," said one arbitrageur, who declined to be named.

Despite the lower price, Caremark said it favored the CVS pact because it had few integration risks and significant opportunities for synergies between the two companies.

But Caremark investors view the price offered by CVS as inadequate and would probably reject the offer in a shareholder vote, said Matt Perry, an analyst for Wachovia Corp.'s capital markets unit.

In November, CVS agreed to buy Caremark in a move to expand its prescription-benefits and mail-order business. At the time of the announcement, the CVS deal offered no premium over the price of Caremark's stock.

Caremark and other pharmacy benefit managers administer prescription drug benefits for employers and major health plans, brokering deals in part by buying medicines in bulk from manufacturers. They also have large pharmacies that deliver prescriptions through the mail.

CVS said Monday that it was pleased that Caremark had reaffirmed its commitment to the deal. Nashville-based Caremark said its deal with CVS had already received antitrust clearance and the companies expected to close the transaction by the end of the first quarter.

Shares of Express Scripts shed 8 cents to $68.78, while shares of CVS closed at $31.35, up 18 cents. Shares of Caremark gained 29 cents to $56.64.

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