Battle for Caremark Update

The Caremark shareholders vote on the CVS merger proposal on February 20, and of course most votes will be submitted by proxy. Yesterday, a proxy vote advisory service Glass Lewis & Co. advised Caremark shareholders to reject the CVS merger proposal. “We are not convinced that the process used by the company and the board to arrive at this deal resulted in shareholders receiving as big a stake as they deserve in the proposed, combined entity,” Glass Lewis said. Express Scripts sent a fifth letter to Caremark shareholders urging rejection of the CVS merger proposal. Express Scripts also sent a letter to the Caremark Board of Directors urging Caremark to open merger talks, and it reported record fourth quarter 2006 revenues. The good news has caused Express Scripts’ stock price to increase, thereby improving the value of its Caremark merger offer. According to the Wall Street Journal, “Based on closing prices Thursday, the Express Scripts bid is about 5%, or $3 a share, higher than the CVS offer.” That’s much better than last week when the two bids were just about even.

Caremark disagreed with the Glass Lewis advice, and CVS ran a full page ad in the Wall Street Journal “citing the substantial negative consequences to shareholders, consumers and employers that would stem from Express Scripts acquiring Caremark.” The CVS deal has one advantage over the Express Scripts deal — the regulatory approvals are in place. This explains why Express Scripts is now advocating Caremark shareholder rejection of the CVS deal, rather than adoption of its deal.