By BETH RUCKER
The Associated Press
Tuesday, January 9, 2007; 2:16 AM
NASHVILLE, Tenn. -- Facing rejection from Caremark Rx Inc. in response to its hostile buyout offer, Express Scripts Inc. is still working to move the deal forward with an attempt to put four sympathetic members on the company's board of directors.
But officials with drug store operator CVS Corp., which plans to acquire Caremark with $21 billion in stock in a deal that could be completed by March, says the proxy move would be a last-ditch effort for a buyout with little chance of regulatory approval.
Maryland Heights, Mo.-based Express Scripts contends that its $26 billion stock and cash offer would offer a 13 percent premium for shareholders over what Woonsocket, R.I.-based CVS is offering. The premium has prompted shareholder lawsuits, but Caremark officials aren't biting.
"The board has unanimously concluded that pursuing discussions with Express Scripts is not in the best financial or strategic interests of Caremark and its shareholders," Caremark officials said in a statement Monday.
CVS officials called the effort to control Caremark's board "a publicity stunt" and said combining two of the nation's largest pharmacy benefits managers wouldn't meet the antitrust scrutiny that the CVS and Caremark deal already passed last month.
With the next Caremark shareholder meeting not scheduled until May, CVS officials repeated their assertions that the combined buying power and integration of what would be called CVS/Caremark Corp. would result in better strategic value for shareholders.
Express Scripts Chief Executive George Paz urged health care professionals attending a JPMorgan Health Care conference Monday to support its bid for Caremark, touting the company's record in buyouts of other rival pharmacy benefit managers.
"I would ask you, if you also share our views, reach out to the Caremark management team and directors and also tell them that you see a lot of value in PBM-to-PBM maneuvers," he said.
While some shareholders are still hopeful for a pending lawsuit to block the CVS deal, some analysts said the chances for Express Scripts are slim.
A Louisiana pension company with a block of Caremark stock has filed a lawsuit in Delaware, where the company is incorporated. An injunction hearing is set for March 20 or earlier if a shareholder meeting to vote on the CVS deal is set, documents show.
The lawsuit seeks to block the CVS deal, claiming it's designed to benefit Caremark insiders. A similar lawsuit filed in federal court in Nashville was dismissed in favor of the Delaware suit.
"Caremark stockholders and the marketplace as a whole have demonstrated their strong support for our offer, which clearly provides Caremark stockholders with superior value to the proposed acquisition of Caremark by CVS Corp.," Express Scripts said in a statement.
A.G. Edwards analyst Andrew Speller said there is little threat from any such lawsuit filed by shareholders.
"Those lawsuits rarely ever win out," he said. "I don't think there's been any gross negligence by the board. Those are the people that Caremark shareholders elect to make those decisions."
Express Scripts said it believes Caremark is attempting to use antitrust concerns as a "red herring" to distract stockholders from the real value differential.
Andrew Klevorn, a Chicago-based antitrust counselor, said it wasn't fair to characterize antitrust concerns as a red herring.
Nashville-based Caremark is the nation's second-largest pharmacy benefits manager, and Express Scripts is the third largest in a market of only a few such companies.
"It's a legitimate business concern for a board to consider whether the offer is going to pass antitrust scrutiny," Klevorn said.
Also weighing against the Express Scripts deal is its credit rating. When its buyout proposal was announced in December, Standard & Poor's credit rating service put Express Scripts, including the BBB corporate credit rating, on CreditWatch with negative implications.
Because Caremark is twice the size of Express Scripts, a Standard & Poor's credit analyst said at the time that the potential for debt financing may cause the rating to be lowered if an acquisition were completed.
Speller said because of all those factors, the CVS offer might pose a sounder long-term option for Caremark than the Express Scripts offer.
Caremark shares rose 29 cents to close at $56.64 Monday on the New York Stock Exchange.
Express Scripts shares slipped 8 cents to finish at $68.78 on the Nasdaq Stock Market. CVS stock ended up 18 cents at $31.35 on the NYSE.
