WOONSOCKET – CVS Corp. and Nashville-based Caremark Rx Inc. last night announced they have taken several steps to enhance the value of their proposed merger for shareholders of both companies.
Those steps include the payment, after the merger closes, of a special one-time cash dividend of $2 per share to Caremark shareholders as of the dividend record date.
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CVS and Caremark also announced they would retire 150 million of the outstanding shares in the new company, or about 10 percent of CVS/Caremark outstanding shares, promptly following the close of the transaction. The share retirement is expected to enable the new company to achieve double-digit cents-per-share accretion and significantly increase the combined company’s return on equity in 2008, they said.
The companies have secured bank commitments for $5 billion to fund the share retirement program. CVS and Caremark said they expect the new company to have a strong investment-grade credit rating and to retain sufficient balance sheet flexibility to make investments in future growth, as well as return value to shareholders through dividends and share repurchases.
The original terms of the Nov. 22 CVS/Caremark merger agreement remain unchanged. Caremark shareholders are to receive 1.67 shares of CVS/Caremark stock for each share of Caremark they own in the merger of equals transaction. On a pro forma basis, CVS stockholders will own 54.5 percent of the combined company and Caremark stockholders will own 45.5 percent.
The special dividend and share retirement both are conditioned upon the closing of the transaction.
CVS and Caremark also noted that they already have begun integration planning, after receiving federal antitrust clearance for their merger on Dec. 20.
The companies had previously announced “conservatively estimated” annual cost synergies of $500 million.
Now, as a result of further preliminary joint integration planning, the companies said they expect to achieve between $800 million and $1 billion in incremental revenues in 2008 and significantly more thereafter. They said those incremental revenues are expected to be generated by “the differentiated new offerings that only a drugstore/PBM combination can provide.”
“We are very pleased to announce today several steps taken by CVS and Caremark that will deliver additional value to both shareholder bases while significantly enhancing the capital structure of our combined company going forward,” said Mac Crawford, chairman, president and CEO of Caremark. “We believe the dividend payment and share repurchase augment the already significant value that will be created by our merger and demonstrates our strong commitment to completing this transaction.”
“As CVS and Caremark have worked our way through the merger process, we have grown increasingly enthusiastic about the strategic benefits of our merger, and about the additional financial flexibility our partnership will create,” said Tom Ryan, chairman, president and CEO of CVS. “Today’s announcement is further evidence that not only will CVS/Caremark be uniquely positioned to address the country’s evolving healthcare needs, but we can do it in a way that rewards our shareholders for years to come.”
The companies yesterday were to file revised joint proxy materials with the U.S. Securities and Exchange Commission to reflect these matters.
CVS Corp. (NYSE: CVS) operates about 6,200 retail and specialty pharmacies in 43 states and the District of Columbia. Besides its CVS/pharmacy stores and CVS.com online pharmacy, it includes the retail-based health clinic firm MinuteClinic and pharmacy benefit management (PBM), mail order and specialty pharmacy firm PharmaCare. It is seeking to complete its proposed merger with Nashville-based Caremark Rx Inc. (NYSE: CMX), by the end of the current quarter, despite a hostile competing bid from PBM firm Express Script. Additional information is available at www.cvs.com.
