CVS, Caremark sweeten offer to $26.3B

CVS Corp. (NYSE: CVS) and Caremark Rx Inc. (NYSE: CMX) today announced “enhancements” to their planned merger in response to rival Express Scripts’ (Nasdaq: ESRX) sweetening last night of its $26.1 billion hostile takeover offer.

In what CVS called its “best and final merger proposal,” it and Caremark agreed to increase their special cash dividend for Caremark shareholders, payable immediately after the closing of the CVS deal, from $6 per share to $7.50 per share for a total dividend of $3.23 billion. As before, Caremark shareholders also would receive 1.67 shares of CVS/Caremark stock for each share of Caremark they owned.

In addition, the companies said, CVS has replaced its previously announced accelerated buyback program with plans for a $35 per share cash tender offer for 150 million CVS/Caremark shares or 10 percent of shares outstanding. The fixed-price offer would follow immediately upon the merger’s closing.

“These two major enhancements make an already compelling transaction even more attractive for Caremark shareholders,” Caremark said in a statement. “The near-term cash value has been increased by $3.2 billion since the merger was originally announced, while the $5.25 billion post-closing tender offer will increase the earnings accretion of this powerful combination.”

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The changes add at least $645 million to the CVS offer, bringing its total value to at least $26.347 billion from the previous $25.7 billion.

After analyzing the revised offer, Fitch’s rating service affirmed its ratings for CVS Corp. securities, saying the rating outlook is stable.

“The transaction will result in a combined company with strong market positions, holding the No. 1 position in retail pharmacy sales and pharmacy benefit management (PBM) lives managed, diversified business risk and strengthened buying power,” Fitch’s said. “Nonetheless, of concern to Fitch is the combined company’s ability to successfully integrate the two organizations while maintaining strong operating performance in its core businesses.”

The CVS shareholder vote on the merger is set for Thursday, March 15, in Woonsocket; the Caremark vote is set for the next day in Nashville. The companies say they hope to close the deal shortly thereafter.

Additional information is available at www.cvscaremarkmerger.com.

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