NEW YORK (AP) — Express Scripts and Medco Health Solutions, the largest U.S. pharmacy benefits management companies, said Thursday they will combine in a deal worth $29.1 billion in cash and stock.
The companies manage prescription drug benefits and look for ways to cut costs for health plan sponsors and members. Combined, they handled more than 1.7 billion prescriptions in 2010 and reported almost $110 billion in revenue.
Express Scripts of St. Louis, Missouri, will buy its rival for $71.36 per share. Medco’s shareholders will get $28.80 per share in cash and 0.81 shares of Express Scripts for each share they own. That’s a premium of 27.9 percent based on Medco’s closing price of $55.78 Wednesday. Shares of the New Jersey company have traded between $43.45 and $65.39 in the last year.
The surprise announcement follows a string of contract losses for Medco, the largest PBM in terms of revenue. On Thursday the company said it has lost more business than it has booked for 2012. It also announced that UnitedHealthcare decided not to renew a contract that ends on Dec. 31, 2012. So far this year, Medco has said the Federal Employees Health Benefit Program, the California Public Employees’ Retirement System, and a Universal American unit would take their business elsewhere after their current contracts expire.
The deal is expected to close in the first half of 2012, pending approval from regulators and from shareholders of both companies. Express Scripts shareholders will own 59 percent of the new company, which will be based in St. Louis. Express Scripts Chairman and CEO George Paz will lead the larger Express Scripts, and the board of directors will expand to include two independent Medco directors.
The companies said they have identified $1 billion in potential cost savings from the combination, which amounts to 1 percent of the combined company’s costs. They said the deal will boost their profits slightly in the first full year after closing if integration costs and other expenses are excluded. The benefit is expected to increase in future years.
Express Scripts’ largest competitor after the deal would be drugstore and PBM CVS Caremark Corp.
Both Express Scripts and Medco also reported quarterly results.