CVS Buying Caremark for About $21.2B

Customers take advantage of the drive through pharmacy window outside a CVS drug store in a Bainbridge Twp., Ohio file photo from Aug. 3, 2006. Prescription benefits manager Caremark Rx Inc. and drugstore chain CVS Corp. said they are in talks about a combination of the companies. The companies said in a statement that they are discussing a possible "merger of equals" transaction. (AP Photo/Amy Sancetta, File) (Amy Sancetta - AP)

Wal-Mart announced last week that it is extending its $4 for a one-month supply of 314 different generic prescriptions to make the program available at 1,008 stores in 27 states.

However, Ryan and Crawford said Wal-Mart's action didn't affect their decision to merge.

"We've been working on all this for some time," Crawford said. "This didn't have anything to do with Wal-Mart."

Garmont said such a deal between Caremark and CVS "would spawn others, and we view all PBMs ... as potential take-out targets."

Still, some analysts said the deal might face antitrust concerns. Barry Barnett, a health care consultant for PricewaterhouseCoopers, said regulators might be concerned that Caremark might unfairly funnel business to CVS pharmacies at the expense of other drug stores.

Caremark buys drugs from pharmaceutical companies directly and then distributes them through its national network of about 60,000 pharmacies and seven mail-order offices. It provides services for over 2,000 corporate, insurance, managed care, government, and union health plans.

Caremark posted 2005 net income of $932.4 million on sales of $32.99 billion.

CVS is the nation's largest pharmacy chain by prescriptions filled, and is second to Walgreen Co. in total sales. It operates more than 6,200 stores in 45 states and reported 2005 net income of $1.22 billion on sales of $37.01 billion.

The Securities and Exchange Commission has been investigating whether executive stock options were backdated at Caremark, company officials have acknowledged. In September, Caremark's Crawford said the company is in "good shape" regarding the investigation and doesn't expect to have to restate earnings.