Biotech Values

[DewDiligence]

Express Scripts Acquires Medco for $29B in Cash+Stock

[Inasmuch as ESRX and MHS are two of three largest US PBMs (CVS Caremark is the other), this deal would seem to have antitrust issues. (The combined ESRX+MHS will be about twice as large as the PBM portion of CVS.) The nominal deal price is $71.36, a 28% premium to MHS’ closing price yesterday.

The PBM industry has been much discussed on this board during the past few years; in the view of rpi_in_wi, a pharmacist, PBMs are leeches that add no value to the healthcare system (#msg-35353328).]

http://online.wsj.com/article/SB10001424053111903461104576459013892952904.html

›JULY 21, 2011
By ANUPREETA DAS, GINA CHON and ANNA WILDE MATHEWS

Express Scripts Inc. agreed to buy Medco Health Solutions Inc. for $29.1 billion in cash and stock, a deal that combines two of the largest U.S. pharmacy-benefit managers at a time when health-care services companies are searching for new opportunities in the face of sweeping industry changes.

"The cost and quality of health care is a great concern to all Americans; this is the right deal at the right time for the right reasons," Express Scripts Chief Executive George Paz said.

Medco holders will receive $28.80 in cash and 0.81 Express Scripts shares for each share, valuing Medco at $71.36 a share, a 28% premium to Wednesday's close.

Pharmacy-benefit managers help employers and health-insurance companies administer prescription-drug benefits, process claims and control drug costs by securing discounts from pharmaceutical companies. Analysts say these companies are expected to benefit from the health-care overhaul law, which will bring millions of Americans under insurance coverage.

After the deal closes, Express Scripts shareholders are expected to own about 59% of the combined company and Medco shareholders will have the remainder.

The combined company will be based in St. Louis, and Mr. Paz will serve as chairman and CEO. The board will be expanded to include two current independent Medco directors. The deal is expected to have $1 billion in synergies.

There has already been consolidation in the pharmacy-benefit management industry. Express Scripts officials have publicly said in the last year that the company was on the hunt for acquisitions. In 2009, it acquired the prescription unit of WellPoint Inc., a health insurer, in a $4.7 billion deal.

In 2007, St. Louis-based Express Scripts lost out on acquiring rival Caremark Rx to drug store giant CVS Caremark Corp., which acquired Caremark for about $26 billion. At that time, Medco was seen as a possible next target for Express Scripts.

Express Scripts, which employs about 13,000 people, also distributes injectable biopharmaceutical products to patients or doctors, and provides cost-management and patient-care services.

Medco, spun out of drug giant Merck & Co. in 2003, provides clinical research and pharmacy services aimed at improving care while reducing health-care costs for private and public employers, union and government agencies. The company took in $66 billion in 2010 net revenue.

Separately, Express Scripts reported its second-quarter earnings climbed 15% to $334.2 million, or 66 cents a share, from $289.9 million, or 53 cents a share, a year earlier. Excluding items, earnings were 71 cents. Revenue edged up 0.6% to $11.36 billion. Analysts polled by Thomson Reuters were looking 71 cents and $11.33 billion. Gross margin improved to 7.1% from 6.9%, and the company reaffirmed its guidance for the year

Meanwhile, Medco reported its earnings fell 4% to $342.8 million, or 85 cents a share, from $356.9 million, or 77 cents a share, a year earlier. Excluding writedowns, earnings rose to 96 cents from 87 cents. Revenue jumped 4.1% to $17.07 billion. Analysts polled by Thomson Reuters had most recently forecast earnings of 94 cents a share on revenue of $17.07 billion. Gross margin was flat at 9.4%, though overhead expenses increased 12%. It affirmed its full-year guidance. Shares of both companies were inactive premarket.

The advisers for Express Scripts are Credit Suisse Group AG, Citigroup Inc. and law firm Skadden, Arps, Slate, Meagher & Flom, LLP. Medco is advised by J.P. Morgan Chase & Co, Lazard Ltd., and law firms Sullivan & Cromwell LLP and Dechert LLP.‹