A Delaware Chancery Court judge said on Friday he expects to rule by Feb. 23 on requests for a preliminary injunction against a proposed $23.8 billion purchase of Caremark Rx .
Rival bidder Express Scripts
At a hearing, Judge William Chandler said he expects to issue a ruling on the matter by the end of the following week.
Earlier Friday, a Caremark attorney argued in the court that pharmacy benefits manager Express Scripts is more interested in killing the proposed takeover of rival Caremark Rx by drugstore chain CVS than in making a serious competing offer.
Caremark attorney Robert Thornton, hoping to prevent an injunction requested against certain deal protections written into the CVS agreement, pointed to a document provided to the Express Scripts board of directors just before that company launched a hostile counterbid to acquire Caremark. The document, he said, showed that Express Scripts considered killing the CVS deal to be a successful outcome even if its own offer was rejected.
"Their real motives were to derail the CVS transaction and to leave Caremark as a weakened and distracted competitor," Thornton said, adding that Caremark directors had real concerns about antitrust issues posed by a potential Caremark-Express Scripts merger.
But attorneys representing Express Scripts and two Caremark shareholders argued that Caremark's directors have been misled by their company's management and have failed to adequately educate themselves about the CVS acquisition.
Instead, the board has breached its fiduciary duty to shareholders by blindly accepting the assurances of Caremark managers, keeping shareholders in the dark, and allowing the company to be hemmed in by the CVS deal protections, including a $675 million termination fee, they argued.
Stuart Grant, an attorney representing a Pennsylvania Masons lodge that owns Caremark stock and has joined a Louisiana police pension fund in suing Caremark and CVS, said the Caremark board didn't try to negotiate a premium from CVS.
The Caremark board also failed shareholders in not trying to reduce the lockup provisions or leave itself room to consider competing offers such as the one made by Express Scripts, he said.
"We're deal-neutral. We don't care what Caremark ultimately does," Grant said. "What we want is the best offer from any interested party. We want full, fair and truthful information, and then we want the owners of this company to decide."
David McBride, an attorney for Express Scripts, said Caremark's board has been hamstrung by the CVS deal protections from considering a better offer from his client. McBride said that before Caremark shareholders vote on the proposed CVS deal, they are entitled to know what their alternatives are.
On Tuesday, Chancellor Chandler postponed a planned Caremark shareholder meeting from Feb. 20 until at least March 9. That ruling came just hours after CVS offered to triple the cash dividend it would pay to shareholders of Caremark, based in Nashville, Tenn., from $2 to $6.
Express Scripts and the institutional investors are asking Chandler to halt the CVS deal, which they contend benefits Caremark executives more than its shareholders.
Among other things, they say, the proposed deal would leave Caremark executives and directors with lucrative positions at the combined company and allow them to avoid possible civil liability resulting from an investigation by the Securities Exchange Commission into potential backdating of stock options.
CVS, the nation's largest operator of drugstores, announced Nov. 1 that it planned to acquire Caremark for about $21.2 billion in stock.
Express Scripts, based in Maryland Heights, Mo., launched its $26 billion bid for Caremark on Dec. 18, but CVS' improved offer is now roughly in line with the value of the Express Scripts bid.
The CVS offer is for stock in the company, and the Express Scripts offer is for stock plus a cash premium to shareholders. Woonsocket, R.I.-based CVS, the nation's largest operator of drugstores, said Nov. 1 it planned to acquire Nashville-based Caremark for about $21.2 billion in stock.