Express Scripts Inc (Nasdaq: ESRX), the third- largest manager of US drug benefits, is set to acquire WellPoint Inc.’s (NYSE: WLP), pharmacy-benefit management unit WellPoint NextRx subsidiaries, for $4.675 billion.
The proposed deal, was signed today (April 13, 2009), and is expected to close in the second half of 2009, subject to customary closing conditions and the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. The transaction is viewed as a win-win for both the parties and their customers as well. For instance, Les Funtleyder, an analyst with Miller Tabak & Co. in New York, said, “Both parties win here because Express Scripts gets the chance to grow that it missed with Caremark, and WellPoint gets cash from an asset that wasn’t essential to its core business”. Similarly, George Paz, chairman and CEO of Express Scripts said “Our aligned business model, combined with the complementary expertise and capabilities of WellPoint, creates significant opportunities for accelerated growth for both organizations”
The deal is a win-win on several parameters – stock market approval, strategic fit, operational synergies, and financial synergies.
WellPoint, the second-biggest U.S. insurer by revenue, had lost 12 percent in the 12 months before today (April 13, 2009). However, news of the deal pushed the stock up by 8.9 percent to $43.94 at 8:37 a.m. before the open of the New York Stock Exchange. Similarly, Express Scripts, whose shares fell 23 percent in the 12 months before, gained 3.5 percent to $50.90 before the open of the Nasdaq Stock Market.
Two years ago Express lost a hostile takeover bid two years ago to acquire rival benefits manager Caremark Rx Inc. Since then it had been under pressure from shareholders and competitors to do an alternative deal. This deal wouldn’t completely offset benefits lost due to Caremark deal. However, the deal accelerates the revenue and profit curves of Express in short time. For instance, the deal is expected to add 25 million Americans and 265 million adjusted prescriptions per annum to Express. More importantly, the transaction includes a 10-year contract for Express Scripts to provide services to WellPoint, one of the nation's largest health benefits companies, once the deal is complete. This contract gives Express the access to approximately 35 million members in WellPoint’s affiliated health plans.
The acquisition of WellPoint’s NextRx might not be a strain on coffers of Express. The deal is structured as a part cash-part stock. Express needs to pay approximately $3.275 billion in cash and $1.4 billion in stock. Moreover, the deal is expected to provide Express future tax benefit and besides being slightly earnings accretive in 2009.
