By AP/KWMU
St. Louis, MO – Pharmacy benefits manager Express Scripts Inc. said Tuesday it has begun its $25 billion offer for all outstanding shares of rival Caremark Rx Inc.
Caremark, has rejected the bid in favor its deal with the drugstore operator CVS Corp. Under the terms of Tuesday's offer, Express Scripts is offering Caremark stockholders $29.25 in cash and 0.426 shares of Express Scripts stock for each share of Caremark stock.
That works out to about $56.87 a share, based on stock prices Friday.
CVS, the nation's largest operator of drugstores, said on Nov. 1 it planned to acquire Caremark for about $21.2 billion in stock.
St. Louis-based Express Scripts then launched its bid then worth about $26 billion for Caremark on Dec. 18. Caremark rejected the offer early this month, but Express Scripts has persisted.
"While we would prefer to meet with the Caremark board and management to negotiate a transaction between Express Scripts and Caremark, we are taking this action in light of the Caremark board's rejection of and refusal to even discuss our superior proposal," Express Scripts said in new release.
Following Express Scripts' announcement, CVS and Caremark issued a statement that they plan to pay shareholders a one-time cash dividend of $2 per share to Caremark shareholders if their deal is approved.
CVS and Caremark also said they will retire 150 million of the outstanding shares in the new company, representing about 10% of the combined company's outstanding shares, if the deal goes through.
"We believe the dividend payment and share repurchase augment the already significant value that will be created by our merger and demonstrates our strong commitment to completing this transaction," said Mac Crawford, CEO and President of Caremark, in a statement.
The share retirement is expected to enable the new company to achieve double-digit cents-per-share accretion and increase the combined company's return on equity in 2008. The companies have secured bank commitments for $5 billion to fund the share retirement program.
Nashville-based Caremark has argued that it is unlikely regulators would approve of a deal combining two of nation's three biggest pharmacy benefit providers.
Express Scripts' offer and withdrawal rights are scheduled to expire Feb. 13.
Whether the Caremark and CVS merger goes through may depend on a shareholder vote expected in mid-March or a Delaware judge considering a Caremark shareholder lawsuit that claims the deal benefits Caremark executives more than shareholders.
Express Scripts attorneys last week asked a Delaware court to void a $675 million breakup fee because they argue it unlawfully locks Caremark into the deal with CVS.
At the close of trading Tuesday, Caremark shares fell 58 cents, or 1.02 percent, to $56.25 and CVS shares fell 15 cents, or 0.47 percent, to $31.79 on the New York Stock Exchange. Express Scripts shares rose 88 cents, or 1.36 percent, to $65.71 on the Nasdaq Stock Market.
Express Scripts Chief Executive George Paz said during a teleconference Tuesday that the Federal Trade Commission and the company's shareholders must approve the exchange offer for all outstanding Caremark shares.
Paz said the company's lawyers have been in talks with the FTC, which is expected to submit an answer within the next 30 days.
Express Scripts and Caremark executives have talked about merging and other "possible combinations" on "numerous occasions" in the past, said Paz, though he did not say when the most recent meetings occurred.
Gregg Haddad, an analyst with First Analysis Securities Corp. in Chicago, said the Express Scripts tender offer "is just another tactic on Express Scripts' part to reach the conclusion it wants."
"I think it makes sense," he said. "Time is of the essence from Express Scripts' perspective.
"CVS obviously has the upper hand here. So it's really incumbent upon Express Scripts to keep its proposal in front of the (Caremark) shareholders."