(Updates to add advisers for the deal in the 7th paragraph)
Express Scripts Inc. (ESRX) agreed to buy Medco Health Solutions
Inc. (MHS) 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 healthcare 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 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 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.
The advisers for Express Scripts are Credit Suisse Group AG
(CS), Citigroup Inc. (C) and law firm Skadden, Arps, Slate, Meagher
& Flom, LLP. Medco is advised by J.P. Morgan Chase & Co.
(JPM), Lazard Ltd. (LAZ), and law firms Sullivan & Cromwell LLP
and Dechert LLP.
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. (WLP),
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. (CVS),
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 injectible 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.
-By Anupreeta Das, Gina Chon and Anna Wilde Mathews
--Nathalie Tadena and Lauren Pollock contributed to this
story