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 Competition to become the nation's top pharmacy gave way earlier this year to competition to take top billing among pharmacy benefits companies. CVS Corp. and Caremark Rx Inc. gained shareholder approval for their $26 billion merger March 15 and 16 (respectively) -- a union that prescription benefits giant Express Scripts Inc. has been trying to scuttle for months. Though it lost out, the bidding worked in ES' favor. Interest from CVS renewed investor interest in prescription benefits managers in general and for ES specifically: its shares were up from $69.97 when it first went after Caremark in December, to $82.39 on Friday, writes The Deal's Lisa Gewirtz-Ward.
ONE CONTENTIOUS YEAR ES tweaked its offer for Caremark March 7, ahead of a second request for information by the Federal Trade Commission. Express Scripts unveiled plans to bolster its $26.1 billion bid by paying 6% interest on the $29.25 a share cash consideration of the offer beginning April 1 and running through the deal's close or 45 days past antitrust clearance, whichever arrived first. Though it ultimately failed, the stock component of ES' offer equated to 0.426 shares of its own stock and was worth about $61.12 a share March 7. Hours later, CVS bettered its own offer, increasing a $6 special dividend payable to shareholders to $7.50 a share, effectively raising its offer to nearly $60 a share. ES' move March 7 was an attempt to woo Caremark shareholders, while the company has stood stalwart in favor of a tie up with CVS. CVS bettered its offer for Caremark in mid-February to about $25.5 billion for the company, boosting its dividend to $6 a share, but still drew fire from shareholder groups, despite Caremark's requests for support. The increased offer came weeks after
The harsh response from Express Scripts came a month after the spoiler launched its initial bid and weeks after having filed for antitrust clearance Jan. 4, 2007--kicking off a showdown with CVS.
Days after the January showdown began, Caremark rejected Express Scripts' advance, saying its board concluded the proposal wouldn't likely lead to a superior offer. Express Scripts then said it would nominate a slate of four directors to Caremark's board. CVS first unveiled plans in November 2006 that it would spread its wings into pharmacy benefits with a $21 billion play for Caremark. The proposed CVS-Caremark tie-up has already passed regulatory muster and in a statement Jan. 7, Caremark said it would "most effectively address the rapidly changing dynamics of today's healthcare system." For CVS, the deal also signals a new way for the company to bulk up, two months after rival Rite-Aid Corp. secured its own No.1 spot among drugstores on the East Coast with its $3.4 billion purchase of Jean Coutu Group Inc. on Aug. 24. MINDING THE COUNTER The Federal Trade Commission issued a second request for information on the proposed Rite-Aid-Jean Coutu tie-up in October. The deal enabled the Camp Hill, Pa.-based chain to add 1,858 drug stores under the Eckerd and Brooks brands and march into Massachusetts, Rhode Island, North Carolina and South Carolina. Though it has certainly drawn scrutiny, the deal isn't expected to suffer the same fate as Rite-Aid's 1996 bid for Revco D.S. Inc., which, Dealwatchers say, faced opposition because of the possibility pharmacy benefit managers seeking contracts with pharmacy chains to offer discounts as part of insurance packages wouldn't be able to negotiate for lower prices from a combined Rite Aid-Revco. But with new players in the pharmacy business, like Target and Wal-Mart, competition should be able to prevail. CLOSE CIRCLES The proposed Rite-Aid-Jean Coutu deal comes just six years after Rite-Aid averted bankruptcy and two years after its $4 billion bid for the entire Eckerd Corp. chain proved unsuccessful, when then-seller J.C. Penney Co. realized it could reap more dividing up the struggling chain and selling off the pieces to Jean Coutu and CVS--$525 million more. The larger pool of bidders reportedly included private equity firms Blackstone Group and Thomas H. Lee Partners LP, who walked away in early 2004.
Sources told The Deal Aug. 24 that Jean Coutu discussed the latest deal only with Rite-Aid. The new company will have annual sales of about $26.8 billion and about 5,000 stores in 31 states and the District of Columbia. NEXT, PLEASE Alongside CVS, Walgreen Co. also continues to surpass No.3 Rite-Aid. Walgreen made some deal announcements in 2006, but a big-ticket purchase for the group might be imminent.--Carolyn Murphy
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