Caremark investors back CVS

Shareholders of Nashville pharmacy benefits management company Caremark Rx Inc. approved a $26.5 billion takeover by CVS Corp. yesterday, giving the drugstore chain new bargaining power to wrangle discounts from pharmaceutical firms on behalf of consumers.

By combining the two companies' price-negotiating power in a new CVS/Caremark Corp. that will have annual revenue approaching $80 billion, CVS chief executive Tom Ryan predicted the merger will "transform the way pharmacy services are delivered" in the United States, promising consumers better services and "more effective cost-management tools" for insurance companies and government medical benefits providers.

The nation's biggest drugstore chain, Woonsocket, R.I.-based CVS operates 6,200 stores in 43 states and has a PharmaCare unit that runs prescription drug programs for managed-care health providers. Caremark buys drugs directly from pharmaceutical companies on behalf of about 2,000 business, government, and union health plans, and provides them through both a national pharmacy network and seven mail-order offices.

CVS had been in a monthslong bidding war with Express Scripts Inc. , a Maryland Heights, Mo., company that is a rival of Caremark in the pharmacy benefits management business. Express Scripts' bid was facing intense scrutiny from the Federal Trade Commission, which raised no antitrust concerns about CVS's bid.

The absence of antitrust concerns, and three rounds of bid-sweetening by CVS that included a $7.50 cash dividend for Caremark shareholders when the deal closes, led a majority of Caremark shareholders to vote for CVS. "We're gratified they realized the value of this combination as we go forward," said Caremark chief executive Mac Crawford .

The deal also helps CVS keep control of the growing amount of pharmaceutical business that companies such as Caremark have been steering from drugstores and retailers toward cheaper mail-order programs that they run.

CVS will be in a stronger position to keep Caremark customers coming into its stores to get prescriptions filled, and while they are there, shop for a range of drugstore, food, and other retail items that CVS sells. The chain predicts the combination will drive $1 billion in new annual revenue for the combined company.

Adam J. Fein, president of Pembroke Consulting in Philadelphia, said he's confident the merger will save consumers money because "a more integrated company is going to drive patients to the lowest-cost dispenser."

Patricia Baker, a Merrill Lynch & Co. analyst, said the two companies have found many "avenues in which they will pursue revenue growth, and they are not wanting for ideas."

But the strategy isn't being universally applauded. The California Public Employees' Retirement System voted its shares in both companies against the deal. "There is poor synergy," Calpers spokesman Brad Pacheco said. "They wouldn't mesh well in a merged company to increase overall value."

Walgreen Co. spokesman Michael Polzin said the 5,500-store chain has no plans to buy a pharmacy benefits management firm but will try to continue expanding its in-house managed-care division, which has struggled since losing major client UnitedHealth Group Inc. in August.

Walgreen, however, did name senior vice president, John Gleeson , a 45-year company veteran who began working there as a clerk when he was a teenager, to a newly created position called "chief strategy officer" reporting directly to chief executive Jeffrey Rein.

Peter J. Howe can be reached at howe@globe.com. Material from Globe wire services was used in this report.