With their company's future at stake, Caremark ( CMX) shareholders face a fundamental question: Should they trust their CEO?

Edwin "Mac" Crawford is urging investors to support an unpopular merger of equals with drugstore chain CVS ( CVS). Crawford insists that the combined company will emerge as a unique powerhouse that can drive valuable changes in the drug delivery business. He portrays a seemingly superior offer from Express Scripts ( ESRX), which would create the nation's largest pharmacy benefit manager, as unattractive in comparison.

To his credit, Crawford has so far steered Caremark through a period of strong growth that has delivered solid shareholder returns. Less than a decade ago, Crawford rescued a company that was on the brink of bankruptcy by shedding its core physician management business and focusing on its small pharmacy benefit management division instead.

Caremark was a modest player in a PBM world dominated by giant drug makers at the time. It grew with help from acquisitions and now ranks alongside Medco ( MHS) and Express Scripts as one of the nation's Big Three independent PBMs.

These days, however, Crawford seems to be shunning the straightforward formula that has brought his company so much success. Moreover, he plans to step aside -- enriched by lucrative stock sales -- and leave CVS CEO Thomas Ryan in charge.

Investors might want to check Crawford's track record as a result. Though widely regarded as a turnaround king who knows how to strike good deals, Crawford has left behind at least one costly mess in the past.

Caremark's stock, originally hammered on news of the CVS deal, continues to march higher as two bidders fight for the company's hand. The shares slipped 6 cents to $58.34 on Thursday but remain within a couple of dollars of their all-time high. The company didn't respond to requests for comment on this story.

Track Record

Richard Scrushy, the infamous founder of HealthSouth, portrayed Crawford as a real winner when Crawford joined struggling MedPartners -- the owner of Caremark -- nine years ago. Scrushy, then MedPartners' chairman, stressed that Crawford had "successfully turned around a large organization" in Magellan Health Services ( MGLN) before assuming his new job.

But in retrospect, it seems, Crawford made some clear mistakes at his last post.

Crawford officially joined Magellan, a behavioral health care company first known as Charter Medical, as assistant to the founding chairman in 1988. That's the same year that Charter's management led an ill-advised leveraged buyout of the company. By 1990, with Charter struggling to service its huge debt load as demand for its psychiatric services slowed, Crawford was fully in charge of the company's hospital operations.

The following year, Crawford helped Charter fight off a hostile bid from rival Community Psychiatric Centers that resembles Caremark's current war with Express Scripts. Indeed, some of the language used by Charter at the time sounds almost identical to the increasingly negative comments being issued by Caremark right now.

In a March 1991 article published by the Los Angeles Times, Charter insisted that CPC's proposed takeover would trigger antitrust problems despite some evidence to the contrary. The company also claimed that the takeover would disrupt its operations and hurt its competitive position. Ultimately, the company declared that its board had reached a unanimous decision to reject any discussions with CPC and pursue a turnaround on its own.

Charter went bankrupt less than a year later.

"We're restructuring the balance sheet and becoming public again," Crawford told HealthWeek in the fall of 1991. "If you could turn the clock back, we wouldn't have done the LBO."

'Contradictory Businesses'

Crawford went on to become president of Charter in 1992 and took over as CEO the following year.

The entire psychiatric care industry faced turmoil at that time. National Medical Enterprises, which now operates as Tenet ( THC), had come under attack for allegedly locking up healthy patients in order to bilk their insurance policies. NME suffered the worst fallout - paying huge fines and exiting the psychiatric business - but others, including Charter, took some punishment as well.

Still, Charter attempted to capitalize on the situation. In 1994, Charter announced plans to purchase dozens of psychiatric hospitals from NME despite ongoing challenges in the industry. Average hospital stays for psychiatric patients were plummeting at that time.

"Crawford knew all this," Forbes reported in September 1996. "But he also figured that people still needed psychiatric care. He figured that, no matter how the health care situation worked out, the demand for mental health services would remain high."

By then, however, Charter was already trying to reinvent itself. The company branched out in 1995 by acquiring a 51% stake in Green Spring Health Services, a manager of mental health benefits, and started operating as Magellan Health Services.

But neither the company's acquisition of the NME psychiatric hospitals nor its purchase of Green Spring really worked out as planned. By the summer of 1998 - shortly after Crawford's move to Caremark - Magellan was trying to exit the psychiatric hospital business entirely and expressing some concerns about its strategy overall.

Crawford's replacement at Magellan, Green Spring co-founder Henry Harbin, portrayed the company's hospital and managed care divisions as "two almost contradictory businesses" in an August 1998 article published by The Atlanta Journal-Constitution.

"The marriage with the old Charter was flawed from the start," Harbin told the newspaper, mentioning conflicts that can arise when the same company that supplies psychiatric services also manages coverage for that care. "It led Mac Crawford and myself at Magellan to rethink this and recognize the realities of the market."

Current Dilemma

Interestingly, critics have raised similar concerns about a union between CVS and Caremark. Together, CVS-Caremark would be providing pharmacy services and managing the benefits that cover them as well.

To be sure, Magellan's own venture backfired. The company's former Charter hospital chain filed for bankruptcy in early 2000, Modern Healthcare reports, and Magellan itself followed suit a few years later. Critics blamed expensive acquisitions carried out during the 1990s for the company's downfall.

"The bottom line is that this is a company that grew rapidly, overpaid on acquisitions and wasn't able to integrate anything," Standard & Poor's bond analyst Joseph Marinucci told Modern Healthcare in 2004. "They had some managerial issues," too.

Magellan emerged from bankruptcy that same year and, despite some setbacks along the way, has seen its stock post strong gains since that time.

Meanwhile, Caremark has fared rather well with Crawford calling the shots. These days, in fact, Caremark is known for making smart acquisitions, particularly its ambitious 2004 purchase of fellow heavyweight PBM AdvancePCS.

Given its success with PBM buyouts, some investors wonder why Caremark is now resisting Express Scripts' overtures when it could instead join forces with the company and bolster its size - and strengthen its competitive position - in the process.

Others, however, see a company with dwindling options. They feel that the Big Three PBMs have lost some of the power they enjoyed just a few short years ago. Quite simply, they say, mounting calls for industry reforms - coupled with increasing competition from Wal-Mart ( WMT) and transparent PBMs - have finally started taking their toll.

Big PBMs have long been accused of using deceptive practices that fatten their profits at their clients' expense. They have denied any wrongdoing but have taken steps to change their ways nevertheless.

Some view Caremark's latest move as simply the most dramatic response so far.

"They realize the market has evolved, and they could only do one of two things," says Tim Thomas, a PBM industry veteran who runs a consulting firm called Pharmacy Benefits Advantage. "They could get bigger, or they could create a new entity.

"But personally, I wouldn't invest a lot of money in any of the big PBMs. I think they're going to have some real trouble" down the road.

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