Pharmacy benefits manager Express Scripts has launched a hostile $26 billion bid to buy rival Caremark a move that could trump Caremark's current deal to be acquired by drugstore chain CVS .
Express Scripts' offer values Caremark at $58.50 a share, based on Caremark's closing price Friday. The deal would pay $29.25 in cash and 0.426 share in Express Scripts for each share of Caremark.
That’s a 22% premium over the average closing stock price of Caremark since November 1, 2006 of $47.99 and about a 15% premium over Caremark's close on Friday.
The race to consolidate in the drug industry comes at a time of tremendous pressure to lower prices. Wal-Mart recently announced it would sell some generic drugs for $4. That leaves companies like Express Scripts and Caremark Rx, who act as middlemen between drug companies and employees, to struggle to reduce costs.
Express said the offer was subject to Caremark terminating its deal with CVS, adding that it would be prepared to go directly to shareholders to get approval.
CVS announced on Nov. 1 that it would buy Caremark for about $21 billion, offering little premium at the time of the offer. Express Scripts said a combination with Caremark would save $500 million a year, which could be a big factor in the premium Express Scripts is ready to pay, The Wall Street Journal reported.
"This opportunity is very compelling as it offers significant value to stockholders, plan sponsors and patients," George Paz, president and CEO and chairman of Express Scripts, said in a press release. "Together, we will have the size, scale and financial strength to expand the markets we serve and enhance our value proposition and, thus, our competitive position,” he added.
If the Express Scripts proposal goes through, Caremark stockholders would own approximately 57% of the combined company, and Express Scripts stockholders would own approximately 43%. The combination will create the world's pre-eminent pharmacy benefit management company, Express Scripts said, and allow it cut annual costs of the combined company by about $500 million.
Express Scripts said it has arranged financing from Citigroup's corporate and investment banking units and from Credit Suisse to finance the proposed transaction.
"There is clearly scope for consolidation," said Paul Diggle, a pharmaceuticals industry analyst at Nomura Code in London, according to Reuters, "The business available for these guys to go after is very price sensitive and there is definitely a further tightening of the price screw."