CVS Sweetens Caremark Bid

Drug store chain CVS (CVS) sweetened its bid for Caremark (CMX), promising holders of the mail-order pharmacy a $2-a-share dividend after the deal closes.

The companies, which agreed in November to a merger valued at some $22 billion, also said they had gotten commitments to borrow $5 billion to retire 150 million shares after the merger's expected first-quarter closing. CVS and Caremark said the buyback will "optimize" their capital structure and boost return on equity.

The companies made the announcement late Tuesday, at the end of a day that started with Caremark's hostile suitor Express Scripts (ESRX) opening a tender offer for Caremark shares.

Last week, Nashville, Tenn.-based Caremark rejected a $26 billion cash-and-stock proposal from Express Scripts in favor of its already announced CVS merger. Caremark said the Express Scripts bid lacked strategic rationale and could raise antitrust concerns.

St. Louis-based Express Scripts responded that it believes Caremark shareholders should decide what deal they want. It pledged to begin a proxy fight to replace four Caremark directors.

On Tuesday, Woonsocket, R.I.-based CVS and Caremark said they plan to stay the course.

"As a result of further preliminary joint integration planning, the companies said they now expect to achieve between $800 million and $1 billion in incremental revenues in 2008 and significantly more thereafter," CVS and Caremark said late Tuesday. "The incremental revenues are expected to be generated by the differentiated new offerings that only a drugstore/PBM combination can provide."