Influential proxy advisory firm Institutional Shareholder Services said on Tuesday it recommends that Caremark Rx shareholders support a takeover proposal from drugstore chain CVS, reversing its previous stance.
CVS has offered about $23.4 billion for pharmacy benefit manager Caremark and is fighting off a competing, hostile offer from Express Scripts.
CVS last week raised its offer for Caremark for the third time, to $53.66 a share, plus a one-time dividend of $7.50 a share payable after the close of the deal. Express Scripts has bid $63.69 a share.
In a report, ISS said that with the $7.50 dividend, CVS has increased its offer by 9% since Feb. 12, when ISS recommended that Caremark shareholders vote against it because of the low premium.
ISS said the current CVS offer is a 26% premium over the Caremark share price the day before the acquisition agreement between the companies was announced last fall.
ISS said CVS is paying 12.3 times forward earnings before interest, taxes, depreciation and amortization based on the current terms, in line with a mean of 12.7 times EBITDA and a median of 12.3 times EBITDA for comparable sector transactions.
Because of that, and the fact that the CVS share price has not suffered each time the company has raised its offer, ISS also said CVS shareholders should support the transaction.
On Monday, Express Scripts said it would not raise its $27.8 billion bid unless Caremark opened its financial records for review. Caremark has refused to negotiate with Express Scripts, saying its offer contains too many financing conditions and antitrust risks.
ISS advises hundreds of institutional investors, mutual funds, money managers and other shareholders on which way they should vote on shareholder proxies.