Express Scripts Acquires Medco
It was revealed on Monday that Express Scripts (NASDAQ: ESRX ) has completed the acquisition of Medco Health Solutions (MHS ) after an investigation by the Federal Trade Commission concluded that the combining of the two largest pharmacy benefits companies would not stunt competition.
According to the Wall Street Journal , the deal is worth $29.1 billion. The FTC voted 3-1 in favor of allowing the purchase to proceed, deciding that it will not change the dynamics of the PBM market. The investigation lasted eight months.
In a statement, the FTC panel said that ESRX and MHS “are not particularly close competitors, the market today is not conducive to coordinated interaction, and there is little risk of the merged company exercising monopoly power.”
ESRX CEO George Paz said in a statement that the merger is, “exactly what the country needs now. We want to find a way to get money back into the hands of patients and their employers.”
Under the terms of the deal, two Medco board members will join the Express Scripts board. There Medco executives (not including Medco CEO David Snow) will join Express' senior leadership. They are Brian Griffin, a senior vice president of international and subsidiaries; Timothy Wentworth, senior vice president of sales and account management; and Glen Stettin, senior vice president of clinical, research and new solutions.
On March 28, Bank of America Merrill Lynch published a research report stating that it expected Express Scripts to finalize its acquisition of Medco, which is currently pending FTC review, within the next month. Recent disclosure from the company and the FTC suggests the parties are focused on arriving at an agreeable solution that will allow the transaction to close in early 2Q12.
“We believe MHS shares no longer trade on fundamentals and are moving to No Rating. Investors should no longer rely on our previous opinions, estimates or price objectives.”
The same day, Morgan Stanley said that while horizontal transactions typically require some structural remedies, in the case of ESRX/MHS, a divestiture will not be effective given the service nature of the industry.
“Potential remedies could include restricting use of exclusive specialty/core PBM deals or requiring ESRX to treat competing specialty pharmacies in same manner as their own. Live Nation/Ticketmaster deal highlighted as a relevant example.”
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