AP News, March 15th, 2007
After months of arguments from rival bidders, Caremark shareholders will decide Friday whether to accept the CVS offer favored by managers or hold out for the chance to be taken over by Express Scripts.
As expected, CVS Corp. shareholders on Thursday approved a stock and cash buyout valued at $26.5 billion. Analysts think CVS may have the edge over Express Scripts Inc., whose bid is slightly higher at $27.2 billion but hasn't yet passed antitrust scrutiny.
The CVS bid has already been approved by the FTC.
Drugstore chain CVS said its shareholders overwhelmingly approved the deal, with a preliminary count showing 91.8 percent of the shares voted were cast in favor.
Caremark shareholders are set to vote on the proposed CVS acquisition in Nashville, where Caremark is based.
The vote had to be delayed twice because of a lawsuit by a pension fund shareholder that claimed Caremark executives struck a bargain that favored company insiders over regular shareholders.
Although the petition failed to stop the CVS deal, it revealed documents showing that Caremark Chairman and CEO Mac Crawford negotiated jobs for himself, his son and other executives, won protection for the Caremark board from an ongoing investigation into backdating of stock options and guaranteed at least some Caremark directors would serve on the new company's board.
Woonsocket, R.I.-based CVS has boosted its offer for Caremark three times while Express Scripts has upped its offer once.
The bidding for Nashville-based Caremark began in November, when CVS offered $21.2 billion in stock for Caremark while Express Scripts issued its hostile bid of $26 billion in December.
To compete with the Express Scripts bid, CVS added $1.50 to its earlier special cash dividend offer of $6 a share payable to Caremark shareholders after the buyout closes.
St. Louis-based Express Scripts has said it would boost its offer of 0.426 shares of its own stock and $29.25 in cash per share by 0.481 cents a day starting April 1 until the deal is closed.
Andrew Speller, an analyst with A.G. Edwards & Sons Inc., said increased antitrust scrutiny of Express Scripts' proposed acquisition and its decision earlier this week not to increase its bid could mean victory for CVS.
"In the end, it's all about the price they're getting," he said. "Certainly without the special dividend, this thing would not have come close to passing. But given the cash component here, it has a chance."
The Federal Trade Commission last week requested more details about Express Scripts' hostile bid, which could delay the potential deal. Caremark is the second largest pharmacy benefits manager and CVS is the third largest.
The CVS deal got another boost earlier this week when investment advisory firm Institutional Shareholder Services reversed an earlier recommendation that Caremark shareholders vote against the CVS deal.
ISS said it changed its mind because of the CVS offer to pay Caremark shareholders a cash dividend of $7.50 a share if they approve the deal.
Investment advisory firms Glass, Lewis & Co. and CtW Investment Group, however, have maintained their recommendations that Caremark shareholders vote against the CVS deal because they contend Caremark's board has not negotiated the best deal for its shareholders.
The California Public Employees Retirement System, one of the largest Caremark shareholders with 2.1 million shares, said in a note posted on its Web site Wednesday that it would vote against the deal.
Express Scripts said on Monday it won't make a higher offer for Caremark because it hasn't been allowed to see enough of Caremark's financial data to determine if it is worth it.
"Caremark's closed door has prevented us from learning anything more about the company that would permit Express Scripts to increase its offer absent due diligence," Express Scripts said in a news release on Thursday.
"We could not, in good conscience, increase our bid based on unknown, incremental synergies. However, we're absolutely committed to increasing our offer if we are able to identify more than $500 million in synergies through confirmatory due diligence."
Caremark officials, however, contend that the Express Scripts deal isn't likely to get FTC approval and that shareholders should vote in favor of the CVS acquisition.
Caremark shares rose $1.65, or 2.7 percent, to $62.73 on the New York Stock Exchange in afternoon trading on the New York Stock Exchange while CVS shares gained 88 cents, or 2.72 percent, to $33.19. Express Scripts shares rose $1.30, or 1.6 percent, to $82.41 on the Nasdaq Stock Market.
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Associated Press Writer Michelle R. Smith in Providence, R.I., contributed to this story.
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On the Net:
Caremark Rx Inc.: http://www.caremark.com
CVS Corp.: http//http://www.cvs.com
Express Scripts Inc.: http://www.express-scripts.com
(Corrects in 7th graf that Mac Crawford is Caremark CEO, sted CVS)
