Express Scripts to buy Medco for $29.1B in cash, stock

Express Scripts Inc. agreed to buy Medco Health Solutions Inc. for $29.1 billion to become the largest pharmacy-benefits manager in the United States.

The $71.36 per-share offer in cash and stock is 28 percent more than Medco’s closing price of $55.78 Wednesday. Investors will receive $28.80 in cash and 0.81 shares for each Medco share they own, according to a Thursday statement from the companies.

The takeover would be the largest in pharmacy services in at least a decade, surpassing the $21.7 billion deal that formed CVS Caremark Corp. in 2007. Buying larger Medco would give St. Louis-based Express Scripts the scale to dominate the market for contracts to manage drug benefits for corporate and government clients.

The companies negotiate drug prices for employer and government insurance plans and manage workers’ pharmacy claims. New Jersey-based Medco is the largest by revenue, followed by Rhode Island-based CVS Caremark and Express Scripts.

Medco, which operates a $140 million automated pharmacy and distribution center in Whitestown, has lost $3.5 billion in contracts since March. The company’s $11 billion contract with UnitedHealth Group Inc., representing about 17 percent of its business, expires after 2012.

Express Scripts has a specialty drug distribution operation in Indianapolis that could employ near 600 workers by next year. The facility was launched in 2007 by Indianapolis-based WellPoint Inc. to help manage the complex and the costly biotech drugs taken by some of its patients.

Last year, Express Scripts acquired WellPoint’s pharmacy benefit subsidiary, called NextRx, for $4.7 billion.

Medco rose 69 cents to $52.54 Wednesday on the Nasdaq Stock Market. Medco advanced $1.25 to $55.78 on the New York Stock Exchange.

Medco shares have declined 13 percent since May 26, the day before the company announced loss of a $3 billion contract covering 9.8 million mail-order prescriptions. Medco in March lost the renewal of a $500 million contract with the California Public Employees Retirement System.

Competition intensified among pharmacy-benefits managers after Express Scripts integrated NextRx's 25 million members. CVS, in the past year, grabbed a contract with Capital Blue Cross of Pennsylvania from Express Scripts and the federal workers plan from Medco.

The number of potential targets dwindled after Connecticut-based Aetna Inc. gave a 12-year, $9.5 billion contract to CVS last July and UnitedHealth began investing in its pharmacy benefits unit.

The deal for Medco would also be the second-largest this year, after AT&T Inc.’s $39 billion planned acquisition of T- Mobile USA Inc. The Wall Street Journal reported the transaction Wednesday.

 

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