Filed by CVS Corporation
pursuant to Rule 425 under the
Securities Act of 1933
Subject Company: Caremark
Rx, Inc.
Commission File No.: 001-14200
The CVS/Caremark Merger is in the Best Interest of Shareholders February 2, 2007 1 |
Cautionary Statement Regarding Forward-Looking Statements This document contains certain forward-looking statements about CVS and Caremark. When used in this document, the words "anticipates", "may", "can", "believes", "expects", "projects", "intends", "likely", "will", "to be" and any similar expressions and any other statements that are not historical facts, in each case as they relate to CVS or Caremark or to the combined company, the management of either such company or the combined company or the transaction are intended to identify those assertions as forward-looking statements. In making any of those statements, the person making them believes that its expectations are based on reasonable assumptions. However, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected or anticipated. These forward-looking statements, including, without limitation, statements relating to anticipated accretion, return on equity, cost synergies, incremental revenues and new products and offerings, are subject to numerous risks and uncertainties. There are various important factors that could cause actual results to differ materially from those in any such forward-looking statements, many of which are beyond the control of CVS and Caremark, including macroeconomic condition and general industry conditions such as the competitive environment for retail pharmacy and pharmacy benefit management companies, regulatory and litigation matters and risks, legislative developments, changes in tax and other laws and the effect of changes in general economic conditions, the risk that a condition to closing of the transaction may not be satisfied, the risk that a regulatory approval that may be required for the transaction is not obtained or is obtained subject to conditions that are not anticipated and other risks to consummation of the transaction. The actual results or performance by CVS or Caremark, or the combined company, and issues relating to the transaction, could differ materially from those expressed in, or implied by, any forward-looking statements relating to those matters. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on the results of operations or financial condition of CVS or Caremark, the combined company or the transaction. This presentation may include certain non-GAAP financial measures as defined under SEC rules. A reconciliation to the most directly comparable GAAP measures can be found in the footnotes to the tables attached to Caremark's latest quarterly earnings press release and certain supplemental information is provided on caremarkrx.com (applicable slides are footnoted). |
Important Information CVS and Caremark have filed a joint proxy statement / prospectus with the SEC in connection with the proposed merger. CVS and Caremark urge investors and stockholders to read the joint proxy statement / prospectus and any other relevant documents filed by either party with the SEC because they will contain important information. Investors and stockholders can obtain the joint proxy statement / prospectus and other documents filed with the SEC free of charge at the website maintained by the SEC at www.sec.gov. In addition, documents filed with the SEC by CVS will available free of charge on the investor relations portion of the CVS website at http://investor.cvs.com. Documents filed with the SEC by Caremark will be available free of charge on the investor relations portion of the Caremark website at www.caremark.com. 3 |
Caremark Profile o Leading pharmaceutical services company providing comprehensive drug benefit services to health plan sponsors and their participants o Uniquely Integrated Services - PBM, Specialty, Disease Management o Clients - Corporate health plans - Managed care organizations and insurance companies - Unions - Government agencies o National Prescription Drug Plan under Medicare Part D o YTD September 2006 Statistics - Revenues $27.5 Billion - Adjusted prescriptions 477 million o 28% of Rxs dispensed by mail o 55% of Rxs dispensed were generics 4 |
Caremark Profile o Caremark retail network includes 60,000 pharmacies nationwide o Caremark operations - 7 mail pharmacies - 21 specialty pharmacies - 9 customer call centers - 12 client-site pharmacies - Industry's only FDA regulated repackaging plant o 13,000 employees, including 1,300 pharmacists * Headquarters + Medical Call Center => Operating Center * Mail Service Pharmacy * Call Center * CareCenter Pharmacy * Specialty Pharmacy * IT Center * Regional Order Creation Center * Sales Office * Clinical Office * Pharmaceutical Repackaging Facility 5 |
CVS Profile o Nation's largest retail pharmacy with more than 6,200 retail and specialty stores in 43 states o Services - CVS/pharmacy stores - CVS.com - MinuteClinic - PharmaCare (PBM, Mail, Specialty services) o 170,000 employees, including 20,000 pharmacists o 2006 revenue $43.8 billion o 2006 prescriptions filled 495 million 6 |
CVS Profile 16% Share of U.S. Retail Scripts #1 or #2 market share in 75% of the top 100 markets in which CVS operates States with CVS/pharmacy Retail Stores PharmaCare Specialty Pharmacy Stores 7 |
CVS/Caremark Merger Overview Name CVS/Caremark Corporation Symbol CVS (NYSE) Management Team Chairman: Mac Crawford President & CEO: Tom Ryan CFO: Dave Rickard President PBM: Howard McLure Board Composition 50/50 Split Headquarters Corporate: Woonsocket, RI PBM: Nashville, TN Expected Closing February 2007 8 |
CVS/Caremark Governance Structure Upon Close o Provides for annual election of all directors o Will have majority voting provision o Separate CEO and Chairman o Has stock ownership guidelines for D&O o Allows stockholders to ratify auditors 9 |
Caremark Board Considered Consumer Strategy Superior to PBM Combination (Aug 2006) Strategic Significance High Low Consumer Strategy National Retail Chain Financial Significance PBM Low 10 |
CVS/Caremark Merger Capitalizes on Evolving Industry Trends Market Trends CVS/Caremark Merger Benefit Growing Consumerism Gives consumers timely, actionable, personalized information to improve health outcomes Cost Shift to Consumer More transparency at point of sale - consumer able to make totally informed decisions Focus on Wellness Consultation by pharmacist or clinician with participant yields favorable outcomes Medicare Part D In store enrollment and consultation; Medication Therapy Management Robust Generic Pipeline May drive higher substitution rates at point of sale Increasing Use of Biotech Products Retail locations; In store consultation and disease management enrollment => Payors demanding more effective cost management, more participant participation, outcomes => Consumers need access to information and choice 11 |
CVS/Caremark Merger Enhances Shareholder Value o 1.67 shares CVS/Caremark stock for each share of CMX o $2.00 special dividend to CMX shareholders of record Financial Benefits o Accretive repurchase of 150 million CVS/Caremark shares o $500 M in cost synergies, integration planning underway o $800 M to $1 B in revenue synergies o Received necessary regulatory approvals from FTC and SEC Certainty of Completion o Shareholder votes are last step (CMX Feb 20, CVS Feb 23) o Uniquely positioned to capitalize on trends and better serve customers o Will enable creation of differentiated services Strategic Benefits o More effective cost management for payors o More access to information and choice for consumers 12 |
CVS/Caremark Merger Enhances Shareholder Value o Clients overwhelmingly positive o Differentiated services will be compelling to payors Business Opportunity o Unmatched in-store services will increase consumer loyalty o February close creates opportunity for 2007 selling season o Substantial FCF will enable flexibility for investments in existing business, strategic opportunities, dividends and share repurchases Financial Flexibility o Solid investment grade credit rating o Proven track-records with large scale acquisition integration Management Teams o History of exceeding stated synergies o Visionary leadership 13 |
Near-Term Revenue Opportunities Unique to CVS/Caremark Combination o Incremental opportunities of $800 M to $1 B in 2008 - Half from PBM, half from retail o Revenue estimates based on market research and PharmaCare-CVS experience o Revenue synergy examples: - Improved access/services for PBM specialty participants - Retail to mail conversion (including in-store pick up) - Front store offers for PBM participants (also on-line and mail) - Improved generic substitution & benefit design compliance - Integrated offering leading to higher PBM sales - Ability to market PBM consumer products in CVS stores - Disease management programs with face-to-face interaction 14 |
Caremark Board of Directors Concluded that Express Proposal Not in Best Interests of Shareholders Strategic Rationale Does not create competitive advantages Defensive reaction out of concern about enhanced competition Constructed to disrupt CVS merger Financial Risk Review of recent filings show offer is highly conditional Lost business & negative synergies could result in loss of value Synergy calculation questionable Antitrust Risk Delay would damage 2007 and perhaps 2008 selling season Enforcement agencies could impose adverse conditions Business Risk Clients overwhelmingly negative Risk of substantial client attrition Financial Position Limited capital for investment in existing business, strategic opportunities, dividends and share repurchases ESRX recently placed on negative watch by rating agencies Management Team No experience with large-scale merger integration Recent integration track-record questionable 15 |
Express Scripts Proposal Includes Material Conditions A due diligence review Satisfaction of financing conditions Anti-trust and other regulatory approvals Approval by their own shareholders - a process they have not even begun and, which by their own admission, would prevent their illusory February 13 deadline from even occurring No decline in the Dow Jones Industrial Average, the Standard & Poor's Index or the NASDAQ --100 Index by an amount in excess of 15% No material change in the market price of Caremark Common Stock Satisfaction of certain Delaware anti-takeover requirements that cannot readily be satisfied absent Caremark's prior Board approval 16 |
Value of Transactions for Caremark Shareholders Value Value of of 1/31/2007 Calculated as of Merger CVS ESRX Proposal Counterparty Stock Price $ 33.65 $ 69.52 * Exchange Ratio 1.67 0.426 Implied Value of Stock Consideration $ 56.20 $ 29.62 * Value of Dividend/Cash Consideration $ 2.00 $ 29.25 * Implied Value of Transaction $ 58.20 $ 58.87 PV of Dividend/Cash Consideration $ 1.98 $ 27.39 Present Value of Offer $ 58.18 $ 57.00 * Annual Discount Rate 10% 10% Closing Date Assumption 2/28/2007 9/28/2007 Estimated Days to Close 28 240 * VALUES DO NOT REFLECT CONDITIONALITY AND BUSINESS RISK FACTORS ASSOCIATED WITH ESRX PROPOSAL 17 |
Dispelling Myths MYTH Incentive Alignment " CVS "makes money when patients and clients spend money" Financial Flexibility " ESRX would have "significant financial flexibility" Contract " "In past 3 years, twice as many Wins/Losses CMX clients have moved to ESRX than vice versa" Channel Choice " CVS/CMX would be "biased to its own stores" Regulatory " ESRX confident "regulatory Approval requirements will be met in timely manner" Options Backdating selling CMX to avoid " "BOD ramifications of stock option backdating" Vertical Mergers " "Vertical PBM transactions have Destroy Value failed to create stockholder value" REALITY Well understood that retail and PBM incentives are aligned with patients and payors Integrated offering delivers more value to clients Financing contemplates JUNK CREDIT Leverage: ~5x Debt-to-2006 EBITDA Limited, if any, ability for share repos / dividends Terms of commitment letters CMX won $1B net new revenues from ESRX in past 3 years CMX will offer network of 60,000 pharmacies Value and choice will drive business PharmaCare offers network of 60,000 pharmacies 3 into 2 mergers face significant antitrust obstacles/delays Heavy large employer concentration may trigger concern Pre and post merger indemnity for D&O does not change Merger agreement contains standard indemnification language that is consistent with Delaware law Not appropriate comparisons -natural conflicts with former Pharma owners, Rite Aid had serious accounting issues CVS/CMX addresses evolving marketplace needs 18 |
CVS/Caremark Merger is in the Best Interests of Shareholders Immediate and concrete financial benefits February 2007 close Significant strategic benefits Clients supportive Proven management teams Highly conditional offer Financial benefits suspect Uncertain timing Lacks strategic rationale Client attrition CMX would be 20x the largest integration ESRX has ever done 19 |
The CVS/Caremark Merger is in the Best Interest of Shareholders February 2, 2007 20 |
Cautionary Statement Regarding Forward-Looking Statements
This document contains certain forward-looking statements about CVS and Caremark. When used in this document, the words anticipates, may, can, believes, expects, projects, intends, likely, will, to be and any similar expressions and any other statements that are not historical facts, in each case as they relate to CVS or Caremark or to the combined company, the management of either such company or the combined company or the transaction are intended to identify those assertions as forward-looking statements. In making any of those statements, the person making them believes that its expectations are based on reasonable assumptions. However, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected or anticipated. These forward-looking statements, including, without limitation, statements relating to anticipated accretion, return on equity, cost synergies, incremental revenues and new products and offerings, are subject to numerous risks and uncertainties. There are various important factors that could cause actual results to differ materially from those in any such forward-looking statements, many of which are beyond the control of CVS and Caremark, including macroeconomic condition and general industry conditions such as the competitive environment for retail pharmacy and pharmacy benefit management companies, regulatory and litigation matters and risks, legislative developments, changes in tax and other laws and the effect of changes in general economic conditions, the risk that a condition to closing of the transaction may not be satisfied, the risk that a regulatory approval that may be required for the transaction is not obtained or is obtained subject to conditions that are not anticipated and other risks to consummation of the transaction. The actual results or performance by CVS or Caremark or the combined company, and issues relating to the transaction, could differ materially from those expressed in, or implied by, any forward-looking statements relating to those matters. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on the results of operations or financial condition of CVS or Caremark, the combined company or the transaction.
Important Information for Investors and Stockholders
A Registration Statement on Form S-4, containing a joint proxy statement and prospectus relating to the proposed merger of Caremark and CVS, was declared effective by the Securities and Exchange Commission on January 19, 2007. CVS and Caremark urge investors and shareholders to read the joint proxy statement/prospectus and any other relevant documents filed by either party with the SEC because they will contain important information.
Investors and shareholders may obtain the joint proxy statement / prospectus and other documents filed with the SEC free of charge at the website maintained by the SEC at www.sec.gov. In addition, documents filed with the SEC by CVS will
be available free of charge on the investor relations portion of the CVS website at http://investor.cvs.com. Documents filed with the SEC by Caremark will be available free of charge on the investor relations portion of the Caremark website at www.caremark.com.
CVS and certain of its directors and executive officers are participants in the solicitation of proxies from the shareholders of CVS in connection with the merger. A description of the interests of CVSs directors and executive officers in CVS is set forth in the proxy statement for CVSs 2006 annual meeting of shareholders, which was filed with the SEC on March 24, 2006 and in the joint proxy statement/prospectus referred to above. Caremark, and certain of its directors and executive officers may be deemed to be participants in the solicitation of proxies from its shareholders in connection with the merger. A description of the interests of Caremarks directors and executive officers in Caremark is set forth in the proxy statement for Caremarks 2006 annual meeting of shareholders, which was filed with the SEC on April 7, 2006 and in the joint proxy statement/prospectus referred to above.