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Express Scripts closes $29.1-billion purchase of Medco

April 03, 2012|By Peter Frost

CHICAGO — — Express Scripts Inc. on Monday completed its acquisition of rival Medco Health Solutions Inc. in a $29.1-billion deal that could have major implications for Walgreen Co.

The deal was announced after the Federal Trade Commission gave its formal approval after an eight-month antitrust investigation of whether the merger would hurt competition in the pharmacy benefits management sector. Pharmacy benefits management companies administer prescription-drug insurance coverage for employers and insurers.

The new company, which will be called Express Scripts Holding Co., becomes the largest pharmacy benefits manager in the nation, filling a combined 1.4 billion prescriptions a year for employers and insurers, according to Express Scripts.

In 2011, about 213 million of those prescriptions were filled at drugstores operated by Walgreen, representing more than a quarter of the Deerfield, Ill., company's total.

For Walgreen, the nation's largest drugstore chain, the deal takes on added significance because of its ongoing spat with St. Louis-based Express Scripts over pricing. The two companies parted ways Jan. 1 after they were unable to come to terms on a new contract that would cover more than $5 billion in business.

As a result, Walgreen lost roughly 85% of the prescriptions it filled for Express Scripts customers through the quarter that ended Feb. 29, contributing to a 7.6% slide in Walgreen's earnings.

On an annual basis, Express Scripts accounted for about 88 million of the 819 million prescriptions Walgreen filled in 2011.

Now that Express Scripts has Medco in the fold, Walgreen could be looking at an even bigger loss of prescription volume. Walgreen filled 125 million scripts for Medco last year and is on pace to fill about 108 million in 2012, according to Walgreen figures.

If Walgreen ends up losing the Medco business after the merger, Walgreen investors should "expect further damage to sales and profits," Carol Levenson, an analyst for corporate credit research firm Gimme Credit wrote last week in a note to clients.

Shares of Walgreen rose 67 cents, or 2%, to $34.16. Express Scripts' stock jumped $1.32, or 2.4%, to $55.50.

While Walgreen last week defended its decision to walk away from Express Scripts, it insisted it plans to honor the terms of its contract with Medco post-merger unless the new company moved to sever the contract or alter its terms.

Express Scripts Chief Medical Officer Steve Miller said Monday that the company plans to honor the Medco-Walgreen contract — at least in the short term.

"As of today, we're honoring that contract, but we'll have to see going forward," Miller said.

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