Shareholders? What Shareholders?

Caremark Rx's proposed merger with CVS, and its rejection of a higher offer from Express Scripts, is a case where a company's management has put themselves totally ahead of the stockholders, Ben Stein argues in a column in The New York Times.Others seem to agree. Last month, the Louisiana Municipal Police Employees' Retirement System sued Caremark, in Delaware, accusing its officers of favoring themselves over shareholders when considering the CVS offer.According to that suit, Caremark Rx's chief executive, Edwin M. Crawford, apparently made it clear that any company acquiring Caremark would have to indemnify him against serious backdating allegations, and a subsequent shareholder lawsuit, involving hundreds of millions of dollars of Caremark stock options for Mr. Crawford and his colleagues. Mr Crawford also made sure that as part of the deal with CVS he would be chairman of the new company, Mr. Stein writes. CVS agreed to do so.In October, Medco Health Solutions asked to talk to Mr. Crawford about a deal, according to The Wall Street Journal, citing people familiar with the situation. But the lawsuit says that when Mr. Crawford learned that he and his Caremark directors would not be part of the new company, he rebuffed Medco's overtures.Ultimately, under terms of the CVS deal, says Mr. Stein, Caremark's directors will be staying on in the new company or be handsomely paid if they are dropped. Mr. Stein also notes that while the deal involved CVS paying no premium at all to ordinary Caremark shareholders, it did call for paying Mr. Crawford more than $50 million, giving his son a major job at CVS and providing him with that indemnity he wanted in the backdating lawsuit.Shortly after the CVS deal was announced, another benefits manager, Express Scripts, offered $26 billion, compared with CVS's original offer of roughly $21 billion, which Caremark's board rejected.All this leads Mr. Stein to ask:
How can Caremark's management sign any deal-blocking clauses at all -- breakup fees or no-shop pledges -- when their duty is not to stop bidders but to encourage bidders? As I see it, this is a deal in which managers -- the hired help -- apparently put themselves totally ahead of the stockholders. Managers will come out like kings; the stockholders will come out like pound animals.
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