CVS Again Sweetens Deal With Caremark

It increases the dividend plan, countering Express Scripts.
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Following a sweetened bid from

Express Scripts




(CVS) - Get Report

has put its "best and final" offer for



on the table.

Drugstore chain CVS will pay investors in mail-order pharmacy Caremark a special dividend of $7.50 a share if they approve a proposed merger of the two companies next Friday. CVS' shift marks the third time it has sweetened its bid for Caremark in the three months since Express Scripts, a pharmacy benefit manager like Caremark, jumped into the fray.

The drugstore chain originally offered no cash at all, favoring an all-stock "merger of equals," back in November. It then offered, at various times, $6 in dividends. CVS holders will continue to own more than half of the combined company if the proposed transaction goes through.

CVS urged Caremark shareholders to choose its offer over a competing deal presented by Express Scripts that still faces regulatory hurdles.

"The Express Scripts offer for Caremark remains fraught with risk, challenges and certain loss of shareholder value," CVS CEO Tom Ryan insisted on Thursday. "In contrast, our best and final merger proposal provides Caremark shareholders with real and deliverable value and is based on a compelling strategic rationale."

Shares of CVS jumped 5.2% to $32.94 following the move. Caremark gained some ground, climbing 2.3% to $62.72, as well.

Meanwhile, Express Scripts has yet to declare its own offer final.

Express Scripts -- considered an early favorite to win the bidding war -- suffered some serious setbacks this week. Most notably, the company failed to convince regulators to bless its buyout with Caremark without a second review. It also lost its bid to further delay a shareholder vote on the proposed Caremark-CVS merger and responded with a meager increase in its offer for Caremark that some view as inadequate.

Still, Express Scripts shareholders seemed relieved by the latest developments. They pushed the company's stock up 2.4% to $76.56 on the news.

Express Scripts must borrow billions of dollars in order to finance its biggest, and potentially riskiest, acquisition yet. Meanwhile, the company has been faring quite well on its own. It raised earnings guidance late Wednesday.

For its part, Caremark feels that Express Scripts simply wants to derail the proposed CVS merger so that it can escape the competitive threats it might present.

"Express Scripts shareholders would likely vote down this ill-conceived takeover attempt when they consider the resulting dilution ... and the high degree of leverage required to complete the transaction," Caremark warned on Thursday.

Ultimately, said Caremark, "Express Scripts may never satisfy the many conditions to its offer and may simply walk away from the transaction leaving Caremark shareholders with a damaged company."