When it comes to Express Scripts Inc.'s $26 billion hostile offer for pharmacy benefit manager, Caremark Rx Inc., the Maryland Heights, Mo.-based company is using all means necessary to persuade the target to shun CVS' bid and accept its higher offer. Express Scripts made a direct plea to Caremark shareholders Jan. 4 sending a letter describing how the possible merger of CVS and CareMark Rx has been negatively received by Caremark and CVS investors. The letter was a well-crafted argument pointing out the negatives of a CVS-CareMark deal compared to the advantages of a hookup between CVS and Express Scripts.
In its letter, Express Scripts first pointed out the most glaring difference between its offer and the one from CVS: price. Express Scripts' higher offer of $59.75 per share, or $26.1 billion, represents a 16% premium to CVS' bid. "Caremark is being sold and Caremark stockholders are not being appropriately compensated," Express Scripts said in the letter. Among the other negatives Express Scripts pointed out on CVS' offer: CVS possesses limited experience in acquiring and integrating a large pharmacy benefit manager; uncertain value in CVS' offer because there is no cash component. Meanwhile, Express Scripts boasted of the higher premium of its offer, its proven track record of creating value for pharmacy benefit managers it has acquired as well as an increase in the value of the combined company's stock price resulting from earnings per share growth driven by estimated annualized cost synergies of $500 million.
To make its argument even more compelling, Express Script claimed that if one invested $1,000 in Express Scripts in 1997, one would have had $1,531 as of Dec. 15, 2006. Meanwhile, investing the same $1,000 in 1997 in CVS, Express Scripts said would be worth $315 as of Dec. 15th. Big difference but Express Scripts' high offer seems to be the main advantage. With the cash component of Express Scripts' larger offer seeming more enticing, many feel CVS has to respond with a higher offer. "Express Scripts is a more straightforward deal," a source told the Deal on Dec. 18th, adding that pharmacy benefit managers — including Express Scripts — have been consolidating for the past few years and the mergers have been extremely successful. — Gerald Magpily
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