Caremark Rx said on Tuesday it sent a letter urging its shareholders to support the $24 billion acquisition by drug-store retail chain CVS and reject a $25 billion hostile takeover offer from Express Scripts Inc..
Caremark said the CVS deal would create value by allowing the combined company to introduce new products and services, while a merger with rival pharmacy-benefits manager Express Scripts could trigger a loss of large customer contracts.
Caremark's shareholders are scheduled to vote on the CVS offer at a meeting on Feb. 20. The CVS pact has passed regulatory review and would offer a faster payoff to shareholders, Caremark said.
Meanwhile, Caremark said the Express Scripts offer contains several conditions, such as a review of Caremark's financial records, and regulatory review. That deal would be unlikely to
close until at the third quarter, Caremark said.
Under the terms of the CVS offer, Caremark shareholders would receive 1.67 shares of CVS for each share of Caremark they own. Based on Monday's closing stock prices, the offer was
valued at $55.16 per share, or $24 billion. Caremark shareholders also would get a special, one-time cash dividend of $2 per share after the CVS deal closes.
Express Scripts is offering Caremark stockholders $29.25 in cash and 0.426 shares of Express Scripts stock for each share of Caremark. Based on Monday's closing stock prices, that offer
was valued at $57.44 per share, or about $25 billion.
"We strongly believe that the Express Scripts proposal is highly risky and conditional, destructive to shareholder value and clearly not in the best interests of Caremark or its
shareholders," Caremark Chairman Mac Crawford said in a letter to shareholders.
Caremark reiterated it expects the CVS merger to yield annual cost savings of more than $500 million, and create between $800 million and $1 billion in incremental revenues in 2008.
"In comparison, the Express Scripts proposal raises substantial concerns about the significant value destruction associated with customer losses, high leverage ("junk credit") and high regulatory risks," Crawford said in the letter.