CVS/Caremark Corp., the second- biggest U.S. drugstore chain, said it plans to buy back as much as $5 billion of its stock after an earlier tender offer for its shares failed to generate enough investor interest.
The board authorized the repurchase of shares “from time to time,” CVS said in a statement last Wednesday. Based on Tuesday’s closing price of $37.01, the company might buy back 135 million shares, or 8.6 percent of its stock.
CVS Corp. bought Caremark Rx Inc., the second-largest U.S. manager of employee drug benefits, for $27 billion on March 22 and planned to repurchase as many as 150 million shares at $35 each after the deal was complete. Only 10.4 million shares were tendered because the stock price went above $35, CVS had said.
“Because of the cash-flow characteristics of this business, we are going to have a lot of extra cash over the years,” Chief Financial Officer David Rickard said. “This isn’t the last time the board is going to get to express a view on it.”
CVS/Caremark forecast this year about $2 billion in free cash flow, which is cash flow from operations excluding capital expenditures, Rickard said last Tuesday.
Shares of CVS have risen 23 percent this year.
Separately, shareholders last Wednesday elected two directors who faced opposition from union groups over how the acquisition was handled.
Roger Headrick and C.A. Lance Piccolo were part of the entire slate of 14 directors that received 55 percent of the vote, CVS spokeswoman Carolyn Castel said in an interview.
Headrick is the CEO of St. Paul, Minn.-based Protatek International Inc., which develops biological products for use in the animal health industry. Piccolo, Caremark’s former vice chairman, is CEO of Healthpic Consultants Inc., which focuses on health care strategy.
Both were formerly members of Caremark’s board of directors, and they faced opposition for several reasons, including previous option grants given to Caremark executives. While the company has said past practices were “entirely appropriate,” the federal government has not completed its own investigation over whether improper backdating occurred.
CtW Investment Group, which advises unions on shareholder issues, and advisory firms Institutional Shareholder Services Inc. and Glass, Lewis & Co, had also recommended a vote against Headrick and Piccolo because of how the company carried out the sale to CVS.
The board of Caremark, the second-biggest manager of employee drug benefits, initially agreed to a $21 billion offer from CVS and refused to negotiate with Express Scripts Inc., leading to questions from investors including a Louisiana pension fund about whether they were being shortchanged. CVS later increased its bid.
CVS said it will have shares outstanding of about 1.6 billion for the second quarter and 1.4 billion for the year. The company operates 6,200 CVS/pharmacy stores; the CVS.com online pharmacy, Caremark Pharmacy Services, a benefit management, mail order and specialty pharmacy division; and the MinuteClinic retail-based health care clinics.
In Rhode Island, where the company is headquartered, CVS employs about 5,600 people.
