WILMINGTON, Del. -- A Delaware judge yesterday refused to invalidate a $675 million breakup fee aimed at protecting the proposed acquisition of pharmacy benefits manager Caremark Rx Inc. by drugstore giant CVS Corp.
Chancellor William B. Chandler III nevertheless ordered that a Caremark shareholder meeting to vote on the deal not be held until at least 20 days after Caremark properly informs shareholders about several issues.
These include their "appraisal rights" regarding a $6 dividend offered by CVS and the fact that $35 million in payments to Caremark's investment bankers were contingent on the bankers initially issuing favorable recommendations about the merger.
"At this stage, however, no broader injunction is necessary," the judge wrote in a 38-page opinion.
Woonsocket, R.I.-based CVS, the nation's largest retail pharmacy chain, said Nov. 1 that it planned to acquire Nashville-based Caremark for about $21.2 billion in stock.
Attorneys for rival benefits manager Express Scripts Inc. of Maryland Heights, Mo., and two Caremark institutional shareholders, a Pennsylvania Masons lodge and a Louisiana police pension fund, challenged the CVS deal in court.
They argued that directors of Caremark had failed to negotiate the best deal for their shareholders and that the proposal contained unfair protection measures aimed at dissuading other bidders for Caremark.
Opponents also said the CVS deal instead was designed to benefit Caremark executives and board members by giving many of them lucrative positions at the combined company and allowing them to avoid possible civil liability resulting from a Securities and Exchange Commission investigation into backdating of stock options.
Plaintiffs' attorney Stuart Grant praised the judge's decision. "He did everything that he should do."
Caremark spokeswoman Brandy Bergman said it was not clear how long it would take the company to comply with the disclosures ordered by the judge. Allen Terrell, an attorney for CVS, called the ruling "very positive."