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The trouble with CVS’s (CVS) rapid-fire acquisitions, capped Wednesday by its announced $21 billion merger with Caremark (CMX), is that you never really quite know what’s going on beneath the surface of the drug retailer.

Before it started its lightening round round of dealmaking – first with Eckerd and then with Sav-On/Osco – critics viewed CVS as aggressive with its accounting, which became even more opaque with each deal.

Whether it’s the way it accounts for its acquisitions, its inventories or something as arcane as its leases, there always appears to be something. In August, for example, Ed Ketz, an accounting professor at Pennsylvania State University, wrote a paper that said CVS “is able to pump up the stockholders’ equity and make it look better than it really is” through its perfectly permissible (albeit aggressive) lease accounting. His analysis showed the company’s financial reports from last year were “hiding” $12.766 billion of debt. “That’s a lot of debt to conceal from shareholders and creditors,” he wrote. (Indeed it is.)

In past columns, I’ve pointed out more mundane items, such as CVS’ stated high level of debt-to -cash and the inferior quality of store-level sales relative to Walgreen, prodding some naysayers to wonder how CVS’ operating margins are higher than Walgreen’s.

Now CVS is pushing hard into the pharmacy benefit management business by acquiring Caremark to create a business that – thanks to one deal layered upon another – could make the newly combined company largely un-analyzable (at least to those who are convinced there are goblins under the bed and in the closet. Good reason to do a deal!)

Will Walgreen and others, meanwhile, be forced to follow with PBM purchases of their own? Are there inherent competitive conflicts in such deals? In what is being billed as a “merger of equals,” is Caremark the smart seller to CVS the gullible buyer? And if so, is CVS overpaying?

All good questions. All impossible to answer. The beat goes on.

P.S.: There's no such thing as a merger of equals; there are always two sides to the transaction.

Source: CVS + Caremark = Un-Analyzable Company