CVS To Buy Caremark In $20 Billion Deal
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A merger of CVS Corp. and Caremark Rx would create a giant drug distributor with increased buying power and dominant retail and mail order positions by forging an alliance between two segments of the industry that have been battling each other for patients.
The Woonsocket, R.I., drugstore chain and the Nashville-based pharmacy-benefits manager said Wednesday they have agreed to merge. CVS will pay 1.67 of its shares for each Caremark share, an all-stock deal worth about $20.8 billion based on the price of CVS shares at the time of the announcement. Shares of CVS recently traded at $29.20, down $2.18, or 6.9%. Shares of Caremark recently were at $48.77, down 46 cents, or 0.9%, and right in line with the 1.67 ratio.
The deal would create a company with $75 billion in combined revenues, a powerhouse better positioned to wring lower prices from big drug manufacturers and wholesalers. The combined entity would be a more formidable competitor for Wal-Mart Stores Inc., which sent shares of drug chains and pharmacy-benefits managers tumbling in September when it announced it will sell some 30-day generic prescriptions for $4 each. Likewise, the merged company would be better equipped to deal with big corporations and government agencies including the new Medicare Part D prescription benefit, which increasingly are looking to pharmaceuticals in their efforts to curb spiraling health care costs.
CVS also will be purchasing a key player in a rival channel in the drug-distribution business. Drugstore chains have been consolidating during the past years, with mergers driven partly by pressures from competitors like Caremark. Such pharmacy-benefits managers, or PBMs, have grown more quickly than retail drug outlets during the past few years, thriving on a model that focuses on mail-order prescriptions, which are cheaper to fill and carry better margins than retail.
Mail-order prescriptions have been a bane to drugstores, which depend on prescription sales to drive customer traffic. In addition to shunting more of Caremark’s customers into its retail outlets, CVS would benefit broadly from Caremark’s control over the administration of drug benefits.
