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agreed to acquire



for $6 billion in stock and cash, creating a pharmacy-benefits giant with annual revenue of $23 billion and igniting AdvancePCS shares in premarket trading.

Caremark will exchange the equivalent of 2.15 common shares for each AdvancePCS share, with the exchange ratio consisting of 90% stock and 10% cash. Caremark will end up with 58% of the combined company, expanding its already huge role administering drug plans for the private sector into the managed-care segment.

AdvancePCS is the larger of the two companies by revenue but Caremark the more profitable. In the quarter ended March 31, 2003, Caremark had net income of about $63 million on revenue of $2.2 billion. AdvancePCS earned about $48 million on revenue of $3.8 billion in the quarter ended June 30.

According to the companies, the combined entity earned $876 million before interest, taxes, depreciation and amortization in the 12 months ending June 30. They expect to take $125 million in costs out of the merged company in the first 12 years and see "near-term" earnings accretion.

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The merger combines two juiced-up stocks: AdvancePCS has more than doubled in the last 12 months and closed Tuesday at $40. Caremark, which was the subject of

an April story by

about its ties to former



CEO Richard Scrushy, is up better that 50% over the same period and closed Tuesday at $25.40.

In Instinet premarket trading, AdvancePCS was up $8, or 20%, to $48, while Caremark was down about 20 cents, or less than 1%, to $25.20.

Both companies act as middlemen between drug makers and insurance companies. The services primarily include pharmacy benefits management, specialty and biotech drug management, and analysis services that are designed to improve the quality of healthcare while reducing costs.