This was a great short position to take a couple months, but it still has a long way down to go, IMHO.
1) The merger with Medco is not likely to be approved. Consider the various Congressmen(women) of both parties who are requesting the FTC give close scrutiny to this deal due to the anti-trust implications. Consider also the political environment, the justice dept's position on finally actually enforcing anti-trust low (most recently, AT&T-TMobile deals gets the kabosh).
2) I can tell you this, unequivocally. I am a Walgreens pharmacist, working in Minneapolis, and we have a major chain-wide campaign underway to get any of our customers who are in a Medicare Part D, Medicare Advantage, or managed care medicaid plan whose prescription benefit is administered by Express Scripts, converted to another carrier. And you know what? To my relief and great surprise, the response of our customers to this campaign has been remarkable. I am setting up multiple appointments daily with people who want to switch plans. Due to law, I cannot advise then which plan to enroll in, but I CAN show them which plans will be participating plans with WAG in 2012.
In short, couple the sure-to-fail merger with the decreased Medicare/Medicaid enrollments due to people peeling off into other WAG-contracted plans, and you've got a real dog here.
If I didn't feel as though I was acting with insider information (I'm probably not, as none of this is a big secret, but don't want to put myself at risk), I would be short ESRX to the hilt!!
They have boxed themselves into a tough corner and are going to be in a lot worse shape than us when the dust settles.
You do know it's illegal to promote any Medicare Part D beneficary to one plan or another without it being based soley on drug coverage and premium, right? I think CMS would like to know about your practice of telling patients to avoid plans solely based on their PBM.