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Triad, the Un-Caremark

A textbook auction of the hospital chain stands in contrast to another recent deal.


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could teach Caremark a thing or two about how to sell a company.

You sure don't hear Triad shareholders complaining these days. After all, they will soon pocket a rich premium for their company. Meanwhile, Caremark shareholders had to settle for a so-called merger of equals with


(CVS) - Get CVS Health Corporation Report

that left many of them feeling shortchanged.

"Triad went through a proper process," says Michael Garland, director of value strategies for CtW Investment Group. "So they're getting a good price."

In regulatory filings covering each deal, the tell-tale "background of the merger" sections -- coupled with the results those actions achieved -- help explain why.

Triad's board, rather than its CEO alone, started the ball rolling. Last June, during a routine board retreat, Triad CEO James Shelton informed his fellow directors that he had started fielding unsolicited calls from possible buyers. The board originally decided to stick with its current plans and put off thoughts of selling the company. But the calls kept on coming.

By August, one of Triad's board members -- Nancy-Ann DeParle -- was telling Shelton that her own private equity firm, CCMP, had some interest in discussing a deal. DeParle then withdrew from the picture to avoid any conflicts of interest.

Shelton met with other leaders at CCMP repeatedly in the months that followed and, by November, had secured board approval to execute confidentiality agreements with "one or more private equity groups." The company was formally negotiating with CCMP within weeks. CCMP soon attracted another private equity partner and, together, they pursued a deal.

Apparently sensing a big development, Triad's board felt compelled to seek change-of-control protection for the company's executives -- except for Shelton himself, whose contract offered that sort of protection already. But the company, unlike Caremark, seemed bent on no particular buyer. In fact, the company took deliberate steps that would enable competing suitors to beat CCMP's offer instead.

CCMP's original bid stood at $45 a share. It included a so-called go-shop period and a modest breakup fee that, due to board insistence, grew more favorable over the course of a week. The all-cash offer itself also rose to $46.75 a share.

Meanwhile, Triad had learned that "a highly credible private equity group" could soon offer far more -- "in excess of $50 per share" -- for the company. That higher deal never materialized, "coming in substantially below $49 per share," but helped push CCMP to raise its own offer to $50.25 a share in the end. CCMP's bid hovered near the high end of outside estimates of the value of the company.

Triad announced the deal without Shelton ever voting on it at all.

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Community Health Systems

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, another publicly traded hospital company, then topped that bid with a higher offer of $54 a share as the go-shop period drew to a close. Shelton has been guaranteed no job by Community, although he stands to collect $8.4 million in severance payments, and roughly $25 million worth of stock proceeds, once the deal goes through.

But Caremark's own CEO, Mac Crawford, looks far richer following his company's unpopular merger with drugstore chain CVS. Throughout a very different negotiating process, critics feel Crawford seemed to mostly look out for himself.

For starters, Crawford and CVS CEO Thomas Ryan started talks about a deal on their own back in the fall of 2005. Crawford soon informed his board of the discussions but still seemed to control the talks nonetheless.

Over the course of the next year -- even when the negotiations with CVS stalled -- Crawford met with just one other potential suitor, rival



, but never seriously pursued a concrete deal. He settled on CVS without even knowing for sure how much he could expect for the company.

Caremark then inked a formal merger agreement with CVS that carried a price tag well below what CVS' own advisers felt the company was worth. It featured a record-setting breakup fee and a restrictive "no-shop" clause to boot.

Caremark soon attracted a higher offer, which was hostile in nature, from

Express Scripts


. With no clear pushing from Caremark, CVS then raised its bid three separate times in an effort to win over shareholders who favored Express Scripts' proposal or -- better yet -- an outright auction that could lead to a higher offer still.

Caremark got its way in the end but left plenty of shareholders grumbling. Meanwhile, Crawford scored such a huge payout that he could afford to "sacrifice" $14 million -- far more than Shelton's entire severance package -- as a reported show of confidence in the new company. He still holds hundreds of millions of dollars worth of stock options as well.

Besides Institutional Shareholder Services, which reversed its stand and helped push the merger through, every major proxy advisory firm opposed the deal to the very end. They called instead for a competitive process, similar to Triad's own, that could unlock Caremark's true value.

"The fact that CVS willingly and unilaterally increased its bid in response to the Express Scripts overture suggests that CVS had money left in its pocket at the time this deal was originally announced," Glass Lewis declared. "Perhaps involving Express Scripts in a formal process -- prior to announcing a deal with CVS -- would have elicited an even higher offer from CVS."

But unfortunately, the firm adds, "this board will never know."