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CVS-Caremark Deal Setback

Glass Lewis wants better terms.



planned merger with


(CVS) - Get CVS Health Corporation Report

suffered a setback Friday when a proxy advice firm came out against the deal, saying Caremark's board hadn't tried hard enough to find a better deal.

Glass Lewis, a San Francisco-based adviser to institutional investors, said it believes there was a "sound strategic rationale" to the all-stock deal. But it also said Caremark's decision to accept the CVS deal, and to reject a rival bid from

Express Scripts

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without soliciting further offers, was unsound.

"Given the wide interest in this sector, the tremendous private-equity dollars available to funds today and the number of industry players, we believe a competitive process would have yielded a better offer from CVS and, potentially, from others," the Glass Lewis report stated.

CVS agreed Nov. 1 to issue 1.67 shares for each Caremark share in a deal valued at the time at $21 billion. Shares of both companies slumped in the immediate aftermath, as investors expressed disappointment that Caremark didn't score a premium takeout offer.

Then, on Dec. 18, Express Scripts leaped into the fray with an offer of $29.25 a share in stock and 0.426 shares for each Caremark share. In January, Caremark's board said the offer wasn't superior, even though it was valued well above the CVS deal, and reaffirmed its pursuit of the CVS pact.

Since then, shares in all three companies have risen sharply, in apparent anticipation of raised bids. But both CVS and Express Scripts have stood pat, though CVS promised a $2-a-share postmerger dividend and Express Scripts said it would buy back lots of stock if its offer fails.

At recent prices, the CVS deal is worth $56.91 a share, including the postmerger dividend, and the Express Scripts deal is worth $60.48.

Caremark shareholders are to vote on the CVS deal in mid-February. Caremark shares fell 45 cents Friday to $61.16.