Egg on Caremark's Face

A critic has now compared Caremark's (CMX) board to a doomed nursery rhyme character in a famously twisted tale.

When reviewing the surreal plot line behind Caremark's planned merger with CVS (CVS), Delaware Chancellor William Chandler felt as if he were reading about Humpty Dumpty in Lewis Carroll's Through the Looking Glass.

On the one hand, Chandler noted, Caremark has claimed that the company is simply merging with CVS and not really changing hands at all. But on the other hand, Chandler mused, Caremark fully expects the deal to trigger change-of-control payments that will shower its leaders with riches.

"It is an unfortunate and disappointing spectacle ... to watch a board of directors insist that it simultaneously deserves the protection of the business judgment rule because the company is not changing hands, while a massive personal windfall is bestowed because it is," Chandler wrote on Friday. "As Alice's cantankerous egg puts it, 'When I make a word do a lot of work like that ... I always pay it extra.'"

Given that all the kings' horses and all the kings' men couldn't put Humpty back together again, some now wonder whether the proposed CVS-Caremark merger -- tainted by allegations of board misconduct -- could be hopelessly spoiled as well.

CVS and Caremark agreed in November to join in an all-stock merger then valued at around $22 billion. The next month, Express Scripts (ESRX) hatched an unsolicited cash-and-stock deal valued at around $26 billion. In January, Caremark rejected the Express Scripts deal, even though it was worth some 10% more than the CVS plan.

Since then, CVS has twice sweetened its offer by promising big special dividends after the merger closes. At recent prices, the CVS deal is worth $60.07 a share and the Express Scripts $62.74. Caremark closed Monday at $63.24, indicating that Wall Street believes the bidding may yet continue.

For his part, Chandler feels that Caremark shareholders should write the ending to this bizarre story themselves. Express Scripts had hoped that Chandler would block the proposed Caremark-CVS merger altogether. Last week, however, Chandler ordered Caremark to better inform its shareholders and simply delay the vote until they can properly digest the new information instead.