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Express Scripts, Medco Deal Gets FTC Approval (Update 1)

The antitrust revied led to Senate and Congress headings, in addition to the FTC's 8-month antitrust review. As the review looked to move in Express Scripts favor, some legislators stepped up their opposition to the deal.

In February, Sen. Herb Kohl (D., Wisc.), chairman of the Senate Antitrust Subcommittee, sent a 6-page letter to the FTC outlining potential pitfalls to the merger, including possible cost increases for corporate, union and government health insurance plans to go with competition concerns.

Nevertheless, March regulatory filings by Medco and Express Scripts indicated that both companies expected deal approval as early as April 2. The filing also noted the potential for divestitures, "subject to satisfaction or waiver of the remaining closing conditions."

Those expectations, and a confidence that the deal would close in the first half of 2012 proved to be accurate. "Our merger is exactly what the country needs now," George Paz, chief executive of Express Scripts, said in a statement. "It represents the next chapter of our mission to lower costs, drive out waste in health care and improve patient health."

In a statement the FTC officials voting in favor of the merger said that the review, "revealed a competitive market for PBM services characterized by numerous, vigorous competitors who are expanding and winning business from traditional market leaders... T he market today is not conducive to coordinated interaction, and there is little risk of the merged company exercising monopsony power."

The dissenting vote from although Commissioner Julie Brill, who described the merger as an industry "game changer" that creates a "merger to duopoly" between the merged companies and CVS Caremark (CVS), "with few efficiencies and high entry barriers - something no court has ever approved."

Though antitrust risks remain, investor and analyst expectations signal that Monday's approval was key. The merger is still subject to antitrust lawsuits filed by the The National Association of Chain Drug Stores and the National Community Pharmacists Association in late March and potential litigation by state attorney generals. However, share prices and analyst comments signal that those inquiries are unlikely to halt the deal after the FTC's approval.

"In relation to the retail drug association lawsuit filed late last week, our consultants believe it is unlikely that a judge would provide a restraining order on the merger close for private sector," wrote UBS analyst Steven Valiquette in a Monday note reiterating a "buy" rating and $68 price target on Express Scripts shares.

Overall, analysts polled by Bloomberg give Express Scripts shares a price target of $60.93 on 21 "buy" ratings and two "holds."

For more on the Express Scripts and Medco merger see why PBM's could be sandbaggin deal synergies. See why Rite Aid earnings overtake deal rumors for more on M&A in the sector.

-- Written by Antoine Gara in New York

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