Caremark Shareholders Fight CVS Deal

A group of Caremark Rx. shareholders has asked a judge to force the pharmacy benefits management company to consider a proposed buyout by rival Express Scripts that could pay more than an offer from CVS .

The shareholders' attorney, Douglas Johnston, said Friday he did not know when U.S. District Court Judge Aleta Trauger would rule on the motion for a temporary restraining order but said a decision wasn't expected immediately.

CVS the nation's largest operator of drugstores and second to Walgreen in sales, said on Nov. 1 that it planned to acquire Caremark for about $21.2 billion in stock.

On Thursday, CVS and Caremark announced that the proposed merger passed antitrust scrutiny of the U.S. Federal Trade Commission and could be completed by the first quarter of 2007.

The approval came days after rival pharmacy benefits manager Express Scripts proposed to pay about $26 billion in a hostile bid for Caremark that would offer a cash option and premium for shareholders.

The shareholders' motion filed Thursday evening claims that Caremark board members will personally benefit from the CVS deal and have entered into a strict merger agreement that keeps them from seeking out the best deal for shareholders.

A spokeswoman for Caremark and Caremark Chairman E. Mac Crawford said they had no comment on the lawsuit and wouldn't conduct any interviews about it. Three of the board members contacted Friday didn't immediately return phone messages seeking comment.

The motion comes in a lawsuit filed last month by the Iron Workers of Western Pennsylvania Pension Plan and asks for a judge to immediately order Caremark to end the "draconian" agreement with CVS and turn over internal documents.

"What they have to do is put aside their own individual interests and think only what is best for their own shareholders," said Johnston, a plaintiffs' attorney with Barrett, Johnston & Parsley of Nashville.

The motion also claims that Crawford would keep his position at the newly formed CVS/Caremark and make up to $48 million in stock, severance payments and consulting fees.

"Unfortunately, what happens many times is that potential buyers will come in and try to work with the managers, provide special benefits and, as much as they possibly can, prevent the board from doing its fiduciary duties," Johnston said.

Caremark officials said this week that they still believe the CVS deal is the best long-term strategic value for shareholders and they remain committed to it.

Under the CVS deal, Caremark shareholders would receive 1.67 shares of CVS for each share of Caremark. CVS shareholders would own 54.5% of the combined company and Caremark shareholders would own 45.5%.

Under the Express Scripts deal, Caremark stockholders would own approximately 57% of the combined company, and Express Scripts stockholders would own approximately 43%.

Some analysts have said that Express Scripts' offer to pay $29.25 in cash and 0.426 shares of its stock for each share of Caremark could be more attractive to shareholders.