Tug o’war…

January 10, 2007

images3.jpegYesterday afternoon, CVS (CVS) filed this amended S-4 which included some additional details on its deal to acquire Caremark RX (CMX), or, perhaps more specifically, some of the Caremark shareholders who aren’t happy about the deal.

First, the back-story: The filing came on the heels of what is developing into a drag-em-out fight that escalated last week with Express Scripts (ESRX) sending this sharply written letter to Caremark shareholders, following up with this plan to nominate four directors. Caremark volleyed back by issuing this press release and calling the Express Scripts move "desperate" and "a stunt" in the business press.

But yesterday’s amended S-4 shows that there’s some growing shareholder concern over the $21 billion deal. While CVS had previously disclosed that several unions had filed lawsuits that raised questions and/or tried to stop the pending deal, the latest filing shows that a new union — the Louisiana Municipal Police Employee’s Retirement System — has jumped into the pool. In addition to claiming that Caremark directors breached their fiduciary duty, they also claim that the Dec. 19 merger proxy omitted "certain material information". The filing goes on to note that a second union — Free Masons in Pennsylvania — have joined the lawsuit.

Still, the filing wasn’t all bad news on the legal front for CVS. A request for a temporary restraining order filed by Iron Workers in Pennsylvania was not just denied — the suit was "administratively closed". That’s also the case for a class-action lawsuit filed by an individual shareholder — Laurence M. Silverstein.

How’s this likely to end? My Magic 8-ball isn’t that reliable. But with several other lawsuits related to the pending deal still working their way through the courts, this isn’t just running up lots of legal bills — they’re also a big diversion for the management of the three companies.

UPDATE: I should have caught this proxy that Express filed earlier this morning. In it, the company says that the $675 million merger termination fee that Caremark would have to pay CVS if the deal didn’t go through is a big barrier to other offers. As all of the wires are reporting this afternoon, Express filed a suit to void the breakup fee, which prompted this response from CVS. Who knew that pharmacy management and WWF wrestling had so much in common? If only the lawyers wore those cute costumes! Now that would be something to see!

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