Express Scripts, Inc. Makes Unsolicited Bid for Caremark
Tremors are still being felt after Express Scripts Inc. made an announcement this morning that has shaken the health care industry and left competing companies bewildered. In an unsolicited takeover bid for Caremark RX (CMX: Charts, News, Offers), Express Scripts has trumped the deal struck just last month between Caremark and CVS (CVS: Charts, News, Offers) by about $4bn. The health care industry is still reeling from Wal-Mart's announcement that they will be offering low-priced, generic prescriptions as this news kicks off another round of uncertainty. Should Caremark consider accepting Express Scripts' bid? What are the implications to the industry if it goes through?
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Express Scripts, a pharmacy benefits manager, is responsible for handling perscription drug benefits for companies and health plans, and facilitating deals by buying medicine in bulk from drug manufacturers. They also run large pharmacies that provide mail order prescriptions. If their bid is taken seriously and actually goes through, the resulting company would be the world's largest pharmacy benefit manager. This means that they'll have significantly increased buying power and will be able to force lower prices from the drug manufacturers. This pressure, combined with new competition from Wal-Mart (WMT: Charts, News, Offers), who will soon be offering low-priced generic drugs, is bound to have a considerable impact of the entire health care industry.
So just what is the offer that has set off today's flurry of speculation and surprise? Express Scripts has offered to buy Caremark, which happens to be a rival company, for nearly $26 billion in cash and stock. The Express Scripts offer, which is subject to Caremark canceling its deal with CVS, proposes paying holders of Caremark stock $29.25 in cash and 0.426 shares in Express Scripts for each share held. The company further announced that it would solicit proxies against the approval of the CVS agreement. The terms of the negotiations between Caremark and CVS called for a purely stock deal for $48.48 a share, which was valued at approximately $21 billion at the time.
Express Scripts CEO, George Paz, wrote a letter to Caremark's board explaining, “By creating the world's pre-eminent pharmacy-benefit management company, we will continue to make the use of prescription drugs, including biopharmaceuticals, safer and more affordable for plan sponsors and patients. Together, we will benefit from more efficient cost management capabilities and unparalleled service offerings. Our independence as a pharmacy benefit manager and alignment with plan sponsors and patients allow all plan sponsors to maintain maximum flexibility in achieving their goals." Additional gains for Express Scripts include an estimated annual cost savings of $500 million as a direct result of the deal. Shares of both companies were up in early trading.
The Company's principal activity is to provide pharmacy benefit management and administration services. The Company's operations are conducted through two segments: Pharmacy benefit management services and Non-Pharmacy Benefit Management services. Pharmacy benefit management services include retail network pharmacy management, mail pharmacy services, benefit design consultation, drug utilization review, formulary management programs, disease management, medical and drug data analysis services and other services. Non-pharmacy benefit management services include distribution of pharmaceuticals requiring special handling or packaging and distribution of sample units to physicians and verification of practitioner licensure. The Company has operations in the United States, Canada and other countries. As on 14-Oct-2004, the Company acquired Priority Healthcare Corporation.
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