Caremark Shareholders Fight CVS Deal

NASHVILLE, Tenn. -- A group of shareholders in pharmacy benefits manager Caremark Rx Inc. has filed for an injunction to force company officials to consider a proposed buyout by rival Express Scripts Inc. that could pay more than an offer from CVS Corp.

Woonsocket, R.I.-based CVS Corp., the nation's largest operator of drugstores and second to Walgreen Co. in sales, said on Nov. 1 that it planned to acquire Nashville-based Caremark for about $21.2 billion in stock.

On Thursday, CVS and Caremark announced that the proposed merger passed antitrust scrutiny of the U.S. Federal Trade Commission and could be completed by the first quarter of 2007.

The approval comes days after rival pharmacy benefits manager Express Scripts Inc. proposed to pay about $26 billion in a hostile bid for Caremark that would offer a cash option and premium for shareholders.

The shareholders' motion filed Thursday evening in Nashville's U.S. District Court claims that Caremark board members will personally benefit from the CVS deal and have entered into a strict merger agreement that keeps them from seeking out the best deal for shareholders.

The motion comes in a lawsuit originally filed by the Iron Workers of Western Pennsylvania Pension Plan and asks for a judge to immediately order Caremark to end the "draconian" agreement with CVS and turn over internal documents.

"What they have to do is put aside their own individual interests and think only what is best for their own shareholders," said Douglas Johnston, a plaintiffs' attorney with Barrett, Johnston & Parsley of Nashville.

The motion also claims that Caremark chairman E. Mac Crawford would keep his position at the newly formed CVS/Caremark Corp. and make up to $48 million in stock, severance payments and consulting fees.

"Unfortunately, what happens many times is that potential buyers will come in and try to work with the managers, provide special benefits, and as much as they possibly can, prevent the board from doing its fiduciary duties," Johnston said.

A phone message left late Thursday night with Caremark's corporate communications office was not immediately returned.

Caremark officials said this week that they still believe the CVS deal is the best long-term strategic value for shareholders and they remain committed to it.

Under the CVS deal, Caremark shareholders would receive 1.67 shares of CVS for each share of Caremark. CVS shareholders would own 54.5 percent of the combined company and Caremark shareholders would own 45.5 percent.

Under the Express Scripts deal, Caremark stockholders would own approximately 57 percent of the combined company, and Express Scripts stockholders would own approximately 43 percent.

Some analysts have said that Express Scripts' offer to pay $29.25 in cash and 0.426 shares of its stock for each share of Caremark could be more attractive to shareholders.

Caremark shares rose 15 cents, or 0.27 percent, to close at $56.15 on Wednesday on the New York Stock Exchange. CVS rose $1.01, or 3.38 percent, to $30.92. Maryland Heights, Mo.-based Express Scripts fell 31 cents, or 0.42 percent, to $73.47 on the Nasdaq Stock Market.