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Big Win for Caremark

A key proxy adviser now backs the CVS bid.



has just won an important blessing on its heart-stopping journey to the altar.

Institutional Shareholder Services, the most influential proxy advisory firm in the country, changed its mind on Tuesday and recommended that investors vote for the company's proposed merger with


(CVS) - Get CVS Health Corporation Report


The firm originally opposed the deal, which began in November as an all-stock offer with rich perks for Caremark leaders but no premium for ordinary shareholders. However, the firm noted on Tuesday, CVS' offer has since risen -- boosted by a special $7.50 cash dividend -- and now looks like a better deal.

ISS' endorsement came just three days ahead of a crucial Caremark meeting, when company shareholders will cast their votes on the hotly contested transaction. Rival bidder

Express Scripts


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has been trying for months to derail the proposed merger and buy Caremark for itself. However, Express Scripts suffered some major setbacks last week -- including calls for more information from federal regulators -- that have seriously weakened its chances of stealing Caremark away.

Shares of all three companies barely budged, climbing less than 1% each, following the news.

For its part, CVS has always portrayed its own offer as superior while casting doubt on Express Scripts' real motives. The company reiterated that stand on Tuesday.

"Our offer not only provides Caremark shareholders with immediate financial benefits, but it will also give shareholders of both companies the opportunity to begin realizing the long-term value only our transaction can provide," said CVS CEO Tom Ryan, who is set to preside over the combined company. "In stark contrast, Express Scripts' highly conditional offer cannot mask its inability to provide Caremark with any real assurance that it is serious about pursuing its bid, threatening to leave Caremark shareholders alone at the altar should they decide to vote down our transaction.

"We look forward to gaining shareholder approval for our deal at CVS' and Caremark's respective shareholder votes later this week."

Meanwhile, Express Scripts -- abandoned by ISS -- continued to woo Caremark shareholders on its own. The company insisted that Caremark leaders had pursued a faulty deal, which has been widely criticized by others, and called for an open bidding process instead.

CtW, another proxy advisory firm, shares that view and continues to oppose the proposed CVS-Caremark merger.

To be sure, Express Scripts still has its fans. Jefferies analyst Arthur Henderson on Monday praised Express Scripts' decision to stick with its current bid for Caremark -- despite increasingly higher offers from CVS -- and recommended that investors buy Express Scripts' stock whether the company winds up with Caremark or not.

"ESRX's decision to maintain its current CMX offer reflects what we have been saying all along: Management is price-disciplined," Henderson wrote. "This team appears unwilling to bid blindly for CMX without confirmatory due diligence. ... While ESRX management is committed to a CMX transaction, they are not married to it."

Henderson believes that Express Scripts is worth at least $90 a share as a stand-alone company and even more -- "north of $100 per share" -- as the winner of Caremark. His firm makes a market in Express Scripts securities.

But the M&A Researcher senses that ISS' new recommendation could help seal a victory for CVS instead. The firm has predicted all along that CVS would prevail.

"This development is not perceived as the proverbial 'nail in the coffin,' but it certainly signals that the hammer is coming down on ESRX," the M&A Researcher wrote on Tuesday. "It will be noted that CVS played this situation almost flawlessly and will be rewarded finally by consummating this merger. Chances of CMX shareholder approval are now perceived to be higher than 90%."