Express Scripts wants seats on Caremark board

NEW YORK -- Express Scripts Inc. will nominate four directors to Caremark Rx Inc.'s board in an effort to push through a $26 billion hostile bid rejected by Caremark yesterday in favor of a lower offer from CVS Corp.

Express Scripts said it would seek the seats after Caremark's board announced the rejection. Caremark said earlier yesterday that a deal with Express Scripts "would result in a highly leveraged and weakened business" and "insurmountable antitrust risks."


Caremark, a manager of prescription benefits for employee health plans, accepted a $21 billion bid on Nov. 1 from CVS, the No. 2 U.S. drugstore chain. CVS and Express Scripts, which is about a third of Caremark's size, want Caremark as a way to gain influence in negotiating discounts on drugs and to lure customers from rivals such as Wal-Mart Stores Inc. and Medco Health Solutions Inc.

"Until we see Express Scripts lay down their cards, you have to agree the door is still open," said Matt Kaufler, a portfolio manager at Clover Capital Management in Rochester, N.Y., in a telephone interview yesterday. "They may raise the bid to entice Caremark away."


Kaufler said he has $2.6 billion under management, including 604,000 shares of CVS.

Caremark's shares rose 29 cents to close at $56.64 yesterday on the New York Stock Exchange composite trading, while CVS shares added 18 cents to $31.35. Shares of Express Scripts fell 8 cents to $68.78 on the Nasdaq stock market.

Express Scripts said "Caremark is attempting to use antitrust as a red herring to distract stockholders from the real value differential at issue."

Express Scripts, which has a market value of $9.33 billion, compared with Caremark's $24 billion, has said it will file a proxy to take its offer directly to Caremark shareholders. CVS has a market value of $25.8 billion.

"We remain committed to pursuing a combination of our two companies," Express Scripts said in an e-mail statement. "Our offer represents a superior proposal."

Caremark's stock has climbed 17 percent since Nov. 1, when CVS offered $48.53 a share. The shares have traded closer to Express Scripts' Dec. 18 offer of $58.50 each. CVS shares have gained 7.3 percent since the Nov. 1 bid, while the stock of Express Scripts has dropped 1.5 percent since its offer.

Caremark's directors met Dec. 22 to discuss Express Scripts' proposal and spoke again by teleconference Dec. 27 before voting unanimously to reject the offer Jan. 5, Caremark said yesterday in a regulatory filing.

"We look forward to closing our transaction during the first quarter of 2007," said CVS Chief Executive Officer Thomas M. Ryan.


The offer from Express Scripts, based in Maryland Heights, Mo., will probably be delayed because of antitrust review, Caremark said.

Employers hire Caremark and rivals to hold costs down by seeking out drug manufacturers and pharmacies with the best prices. Health insurance plans and employers are turning to such companies to help counter rising health-care costs. Spending on prescription drugs in the U.S. increased 5.4 percent to $251.8 billion in 2005.

Caremark said in its statement that consumers will benefit from an alliance with CVS because the two companies will be able to streamline delivery of high-cost specialty biotech drugs through retail and mail-order delivery.

Express Scripts went after Caremark in part to get a bigger share of the $35 billion annual market for specialty biotech drugs, which can generate higher profits because distributors can sell equipment and services that pill-takers don't need. The drugs are often fragile and must be injected or given intravenously.