Monday, December 18, 2006

Express Scripts Tops CVS With $26 Billion Caremark Bid

In an audacious takeover bid that could lead to lower drug prices for consumers, Express Scripts, a company that manages employee drug benefits, has launched a $26 billion hostile bid for larger rival Caremark Rx. The proposal tops a competing offer by the CVS drugstore chain in a bold move that evokes memories of the big buyout deals of the 1980’s and could lead to a bidding war.
Express Scripts is offering $29.25 in cash and 0.426 of its own shares for each Caremark share, or $58.50 in total — a 15 percent premium on Caremark’s closing price on Dec. 15, Express Scripts said in a press release early Monday.
Pharmacy benefit managers act as the middleman between drug companies and employers that offer drug subsidies to their workers as part of health-care coverage. By acquiring Caremark Rx, which is double its size, Express Scripts would become the largest pharmacy benefits manager in the nation by far.
The takeover bid, which seeks to scuttle Caremark Rx’s agreement last month to merge with CVS, will pit Express Scripts, with a market value of $9.3 billion, against the much-larger CVS, worth some $25 billion.
The offer by Express Scripts is a throwback to the 1980’s in two ways: It is a rare hostile bid that could spark a fierce bidding war, and it relies heavily on debt, some $14 billion. Express Scripts’ $26 billion offer is a vivid illustration of the role that cheap credit is playing in fueling the explosion in takeovers, as historically low interest rates and a flood of available cash have enabled private equity firms to buy out bigger and bigger companies.
The offer comes as somewhat of a surprise, as Express Scripts had widely been considered a takeover target, not an acquirer, because of its small size. Indeed, its bid for Caremark could also put it into play.
The proposed merger between CVS and Caremark received a mixed reception by investors. When it was first announced, shares in both companies tumbled, but they have returned to close to where they started after the deal. In that deal, Caremark received no premium for its shares.
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