M&A

Second Opinion for CVS-Caremark?

A Delaware judge may compel Caremark Rx to give more consideration to a hostile offer from rival pharmacy-benefits manager Express Scripts.
Stephen TaubFebruary 16, 2007

Will drugstore giant CVS acquire pharmacy-benefits manager Caremark Rx? The answer may very well depend on the ruling of a Delaware judge, expected Friday.

In what’s widely considered an unusual development, Chancellor William B. Chandler III will reportedly hear arguments by two parties that have filed a lawsuit to halt the merger: pharmacy-benefits manager Express Scripts, which tendered a hostile offer for Caremark, and a Louisiana pension fund that owns Caremark stock.

Earlier this week, Chandler moved back a shareholder vote on the deal from February 20 to at least March 9.

The Louisiana Municipal Police Employees’ Retirement System and Express Scripts maintain that the CVS offer would benefit Caremark executives more than its shareholders. The pension fund asserts that Caremark chief executive officer Mac Crawford was most interested in securing jobs for himself, his son, and other executives when he agreed to sell the company to CVS, according to the Associated Press.

The lawsuit also reportedly alleges that Caremark executives and directors would receive lucrative director positions at the combined company, and that they can use the sale to insulate themselves from a Securities and Exchange Commission probe into possible backdating of stock options.

According to the AP, the lawsuit also questions whether the deal’s announcement was deftly timed to coincide with a drop in Caremark’s share price last fall.

In addition, Express Scripts has reportedly asked the judge to void a $675 million breakup fee, arguing that it unlawfully locks Caremark into proceeding with the acquisition by CVS.

Caremark and CVS officials have called the charges unfounded, the AP reported, and plan to move ahead with the deal.