Express Scripts Begins $25 Billion Hostile Bid for Caremark; CVS Sweetens Deal

Express Scripts began seeking Caremark shareholder support for its $24.3 billion hostile bid yesterday, prompting rival bidder CVS to sweeten its offer for the pharmacy benefits manager with a one-time dividend of $2.00 a share. Caremark rejected Express's offer last week in favor of CVS's $22.3 billion proposal. In December, Express Scripts bid $29.25 in cash and 0.426 share of Express Scripts stock for each share of Caremark about two months after Caremark accepted a bid of $21 billion in stock from CVS. Based on current stock prices, the Express deal offers Caremark shareholders a 7% premium over the CVS deal. Following Express's move yesterday, CVS and Caremark announced the dividend and also said they will retire about 10% of the new company's outstanding shares if the deal goes through. The share retirement should help the new company achieve double-digit cents-per-share accretion and boost 2008 ROE. The Caremark-CVS deal hinges on a shareholder vote in mid-March and a ruling on a Caremark shareholder lawsuit. Caremark management maintains that a combination with CVS could lower costs by $400 million and disputes Express's $500 million savings estimate. It also contends that a combination with Express is unlikely to be approved by antitrust regulators.

• Sources: MoneyCentral, Bloomberg (I, II), New York Times, Wall Street Journal
• Related commentary: Express Scripts, Snubbed by Caremark Rebuff, Launches Proxy War, Desperate Moves in the CVS, Express Scripts, Caremark Tug o' War, Caremark Favors CVS Offer Over Express Scripts, Express Scripts Undercuts CVS in Brazen Bid For Rival Caremark Rx
• Potentially impacted stocks and ETFs: Express Scripts, Inc. (ESRX), Caremark Rx, Inc. (CMX), CVS Corp. (CVS). Competitors: Unitedhealth Group, Inc. (UNH), Wal-Mart Stores Inc. (WMT), Medco Health Solutions (MHS), Wellpoint, Inc. (WLP). ETFs: iShares Dow Jones US Healthcare Provider (IHF), PowerShares Dynamic Mid Cap Growth (PWJ), Retail HOLDRs (RTH), SPDR Retail (XRT), PowerShares Dynamic Pharmaceuticals (PJP), iShares Dow Jones US Pharmaceuticals (IHE), SPDR Pharmaceuticals ETF (XPH)

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