The increased dividend marked the third time CVS has improved its bid since November, when it agreed to buy Caremark in an effort to expand its prescription benefits and mail-order business.
CVS also said if the deal is closed, the combined company will make a cash tender offer of $35 a share for 150 million, or about 10%, of its outstanding shares.
The drug store retailer said its latest proposal constituted a "best and final" offer.
Meanwhile,Caremark Rx said on Friday a second request for information from U.S. antitrust regulators into the offer from Express Scripts is evidence the bid may not be able to be completed.
"This action by the (U.S. Federal Trade Commission) is clear evidence that this highly conditional, highly leveraged proposal can not be completed for many months, if ever,"
Caremark said in a statement.
Caremark urged shareholders to support the bid by CVS.
Not at Any Cost
"There has been some speculation that in saying the bid was 'best and final,' CVS was not serious," Faber said. "Ryan put that to rest [by] telling me that while a merger with Caremark would be a transformational deal, it is not transformational at any cost."
Ryan would not commit to a share buyback if the deal is voted down by Caremark shareholders, saying that CVS will look at options for returning money to shareholders through buybacks or a dividend, Faber said. CVS is expected to have $1 billion in free cash flow in 2007 without a Caremark deal, Faber said.
"As for his rival to buy Caremark, Ryan was dismissive of Express Scripts' bid for the company, calling it an emperor with no clothes due to what he says is the high conditionality of the bid which would allow express to walk away under many scenarios," Faber reported.
Express Scripts improved its bid to acquire Caremark on Wednesday, saying it would boost its offer of 0.426 shares of its own stock and $29.25 in cash per share by 0.481 cents a day starting April 1 until the deal is closed.
"Ryan termed the Express bid 'a hostile sale of their company,' called their currency 'Monopoly money' and said of Express plan to pay investors to wait for it to get anti-trust approval a ticking bomb, not ticking interest," Faber said.
A spokesman for Express asked Faber, "If his Pissant [prescription benefits manager] and Caremark can deliver $500 million in synergies, how can the Caremark board not explore the synergies from a deal with Express?"
CVS has set a shareholder vote on the deal for next Thursday. Caremark shareholders are to meet at the company's headquarters in Nashville for the same purpose the following day.
Woonsocket, R.I.-based CVS, the nation's largest retail pharmacy chain, opened the bidding for Caremark on Nov. 1 with an offer to pay 1.67 of its own shares for each Caremark share.
Maryland Heights, Mo.-based Express Scripts made a $26 billion stock and cash bid in December, but Caremark rejected it.