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— Deals —
 June 2: Express Scripts to raise up to $1.6B: The pharmacy benefits manager will use the proceeds to help it pay cash for WellPoint's drug benefits unit, NextRx. - Donna BlockMay 14: CVS-Caremark merger called into question The Federal Trade Commission was asked to re-evaluate the 2007 deal in which CVS bought Caremark Rx Inc. for $26 billion to create CVS Caremark Corp. (NYSE:CVS). Reuters got wind that National Community Pharmacists Association's president, Holly Whitcomb Henry, said FTC Chairman Jon Leibowitz told the group that the issues were "of concern" and that FTC staff would look into them. -- Baz Hiralal THE DRUGSTORE GAME Meanwhile, rounding out April, Bankrupt drug store chain Drug Fair Group Inc. sold 32 stores to stalking horse Walgreen Eastern Co. for $54 million. Walgreen's No.2 to CVS Caremark, but that doesn't mean it's out of the game. Also in said game is Wal-Mart Stores Inc. Corporate Dealmaker's Kenneth Klee examined the industry in more depth in a May issue of The Deal.
But getting back to CVS-Caremark, in October, after repeatedly
extending its tender offer for Longs Drug Stores Corp., CVS said it has
secured 76.5% of the target's stock and planned to close its $2.9 billion deal for the company by the end of the month.
The two unveiled merger plans Aug. 12. Walgreen Co. tried to spoil the party with a rival bid in September, but then retreated and saw its CEO take his leave. During the week of Oct. 13, CVS then twice extended the deadline for Longs stockholders to tender their shares. Walgreen had chimed in Sept. 12 with a $75 per share offer for the target, which bettered the standing $71.50 per share agreement with CVS, and which Longs refused to discuss. Walgreen dropped its bid Oct. 8, and its CEO Jeffrey Rein stepped down Oct. 13. Meanwhile the Federal Trade Commission was examining a prospective Walgreen-Longs deal for antitrust implications, and the target's two largest shareholders, Advisory Research Inc. and William Ackman's Pershing Square Capital Management LP, said they would vote against the CVS deal, arguing it undervalues the company, which failed to conduct a competitive auction. Also central to the concern is Longs' real estate assets, the lack of an appraisal or analysis of its value to CVS. The target operates 521 stores in California, Hawaii, Nevada and Arizona, and it owns the land associated with nearly 200 of them, as well as three office locations and three distribution centers. The deal will enable CVS to greatly expand in the West, and Walgreen expressed interest in the attractive Hawaiian market. - Carolyn Murphy Aug. 15: William Ackman of Pershing Square Capital Management LP stands to make a very pretty penny if the CVS Caremark offer to buy Longs for $71.50 per share closes. The activist investor acquired most of his 25.8% stake in Longs in July and early August, when the shares traded in the low $40s to the mid-$50s range through a mix of common stock purchases and the acquisition of notional shares via total return swap arrangements. But, according to Aug. 15's Financial Times, a return in excess of 30% for a very short-term holding may not be enough for Ackman. - Michael Rudnick WALGREENS' NEW REGIMEN July 10: Walgreen said it would slow its pace of organic growth to focus on acquisitions. By slowing growth in 2009, Walgreen will open up about $500
million in capital over the next three years, which chief executive
Jeffrey Rein told The Wall Street Journal
the company will use to acquire healthcare services providers.
Walgreen will also likely make more acquisitions in its specialty
pharmacies and services division, one of the fastest-growing healthcare
segments. In June Walgreen announced it had acquired CuraScript Infusion Pharmacy Inc., a home infusion pharmacy division that provides treatments for immune deficiency, chemotherapy and pain management. Walgreen also acquired OptionCare Enterprises in July 2007 for $850 million in cash. - Maria Woehr Walgreen bought CuraScript from Express Scripts Inc., which in 2007 had duked it out with CVS for Caremark in a contest CVS eventually won. In March, Walgreen started a health and wellness division and bought two worksite health centers. It was part of a larger movement toward the creative as the retail sector was looking sickly. July 1: Meanwhile, the merger of RxHub LLC (owned by community pharmacists and big drugstore chains) and SureScripts LLC (owned by the pharma benefit managers), the two biggest e-prescription groups, was also an interesting governance exercise, which you have to read about to believe. ONE CONTENTIOUS BATTLE Back in 2007, competition to become the nation's top pharmacy gave way earlier in the year to competition to take top billing among pharmacy benefits companies. Rounding out the year, the merged CVS Caremark's fourth-quarter net earnings almost doubled compared to '06 numbers: from $417.2 million to $815 million. CEO Tom Ryan hails the deal as a "transformational merger" that allowed them to create a differentiated position in the marketplace, which in turn enabled them to reduce the costs and complexities of healthcare for payors and consumers. - Baz Hiralal
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 filing 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. GRAND PLANS 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 passed regulatory muster and in a statement Jan. 7, 2007, Caremark said it would "most effectively address the rapidly changing dynamics of today's healthcare system." For CVS, the deal also signaled 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 FTC 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 drugstores under the Eckerd and Brooks brands and march into Massachusetts, Rhode Island, North Carolina and South Carolina. Though it certainly drew scrutiny, the deal wasn't expected to suffer the same fate as Rite-Aid's 1996 bid for Revco D.S. Inc., which, observers said, 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, it seemed, would still exist. CLOSE CIRCLES The proposed Rite-Aid-Jean Coutu deal came 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 LP and Thomas H. Lee Partners LP, who walked away in early 2004.
Sources told The Deal Aug. 24 that Jean Coutu discussed the divestiture only with Rite-Aid. The merged company expected annual sales of about $26.8 billion and would have nearly 5,000 stores in 31 states and the District of Columbia. Visit the complete Dealwatch Archive |
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