CVS-Caremark Would Be a Pharmacy Giant
Drugstore chain CVS and Caremark RX, a pharmacy benefits manager, confirmed this morning they were in merger talks that could lead to a $21 billion deal. An agreement would transform the combined companies into the largest player in the distribution of drugs–CVS already is the nation's largest retail pharmacy with 6,200 stores and Caremark the leader in managing employee drug benefits.
The companies described the intent as a "merger of equals." It would continue a merger spree in recent years among drugstore chains, as they jockey to solidify their positions in the consumer and healthcare industries and meet rising competition from other retailers, most notably Wal-Mart.
In a combined release this morning, CVS and Caremark warned that a deal still might not come through. CVS has a market value of about $26 billion, and Caremark's shares are worth about $21 billion. In early trading, Caremark shares were up about 4 percent to $50.96, while CVS fell about 8 percent to $29.
CVS still is digesting a couple of recent acquisitions, including about 700 Osco/Savon stores it bought in June and MinuteClinic, which operates about 100 in-store clinics, Lehman Brothers analyst Meredith Adler said in a recent report. But CVS has done a good job in expanding its geographic reach and broadening its product offerings, she wrote. "We view CVS as one of the best-positioned drug retailers in the U.S."
The shares of drug retailers suffered after Wal-Mart began a trial program in Florida to offer many generic drugs at $4 per prescription. The giant retailer last week expanded the program to more than 10 states.
Rising drug prices have fueled the business of benefits managers like Caremark, which helps employers reduce costs by providing mail-order prescriptions and offering programs that encourage employees to use generic drugs when possible. Caremark itself was built through acquisitions, including Advance PCS in 2003 for $5.6 billion.
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