Express Scripts-Medco Unite


Express Scripts Inc. (ESRX) recently announced the completion of its merger with Medco Health Solutions, Inc., in a deal worth $29.1 billion. As a part of the merger, Medco Health shareholders received $28.80 in cash and 0.81 shares of Express Scripts for each share of Medco Health that they own.

Following the merger, Express Scripts’ shareholders own 100% of the merged entity.

Express Scripts expects to generate $1 billion in synergy, following the integration of the two companies. Express Scripts expects the transaction to be slightly accretive to earnings in the first year after the closure and moderately accretive to earnings in the year of complete integration.

We note that Express Scripts had first announced its intention to acquire Medco Health in July last year, for $71.36 per share, in cash and stock. In mid-March 2012, Express Scripts and Medco Health agreed to extend their merger-closing date. According to the Hart-Scott-Rodino Act, the waiting period for the merger expired on March 12, 2012. However, the companies decided to work with the US Federal Trade Commission (FTC) and planned to close the merger by early second quarter 2012.

We believe that the acquisition of Medco Health will generate more synergies for the two Pharmacy Benefit Management (PBM) companies, in the form of lower cost of prescription drugs and improved quality of healthcare.

The Medco Health transaction is the second major acquisition made by Express Scripts in the last few years. In December 2009, Express Scripts had acquired NextRx, WellPoint Inc.’s (WLP) PBM segment. The deal significantly expanded Express Scripts’ PBM business and included a 10-year contract under which Express Scripts will provide PBM services to WellPoint and its designated affiliates.

Currently, we have a Neutral recommendation on Express Scripts. The stock carries a Zacks #3 Rank (Hold rating) in the short-run.

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