Express Scripts
Background
The following document will summarize and evaluate the proposed merger deal between Express Scripts and Medco Health Solutions. The evaluation process will be supported by six sections and will be immediately followed by a conclusion.
Express Scripts is currently the nation’s leading Pharmacy Benefit Manager (PBM) provider with 90 million covered lives, followed by CVS Caremark with 85 million, and Medco with 65 million covered lives. In the large commercial employer market, these three PBMs (Big Three) have a dominant market share of between 80 and 90 percent. In the United States, a PBM is a third party administrator of prescription drug programs. PBMs aggregate the buying power of millions of enrollees, enabling plan sponsors and individuals to obtain lower prices for their prescription drugs through price discounts from retail pharmacies, rebates from pharmaceutical manufacturers, and the efficiencies of mail-service pharmacies. While PBMs also offer many different services and tools, they are primarily responsible for processing and paying prescription drug claims. Today, more than 210 million Americans nationwide receive drug benefits administered by PBMs.
Deal Evaluation
a. Motivation/synergies
Express Scripts and Medco together had 35,000 employees at the end of 2011, according to data compiled by Bloomberg. This leaves ample room to cut workers, facilities and other expenses which will raise the profit margin of the combined company. Express Scripts believes it can save $1 billion in cost savings and gain other synergies from the merger. This is expected to slightly add to EPS in the first year after closing the deal. Furthermore, the cost-savings for Express Scripts may be more than $1 billion since U.S. regulators declined to make the two companies divest assets. Lastly, the merger diversifies and creates a more stable revenue stream as Express Scripts has had the most success targeting middle-market plan sponsors and health
The following document will summarize and evaluate the proposed merger deal between Express Scripts and Medco Health Solutions. The evaluation process will be supported by six sections and will be immediately followed by a conclusion.
Express Scripts is currently the nation’s leading Pharmacy Benefit Manager (PBM) provider with 90 million covered lives, followed by CVS Caremark with 85 million, and Medco with 65 million covered lives. In the large commercial employer market, these three PBMs (Big Three) have a dominant market share of between 80 and 90 percent. In the United States, a PBM is a third party administrator of prescription drug programs. PBMs aggregate the buying power of millions of enrollees, enabling plan sponsors and individuals to obtain lower prices for their prescription drugs through price discounts from retail pharmacies, rebates from pharmaceutical manufacturers, and the efficiencies of mail-service pharmacies. While PBMs also offer many different services and tools, they are primarily responsible for processing and paying prescription drug claims. Today, more than 210 million Americans nationwide receive drug benefits administered by PBMs.
Deal Evaluation
a. Motivation/synergies
Express Scripts and Medco together had 35,000 employees at the end of 2011, according to data compiled by Bloomberg. This leaves ample room to cut workers, facilities and other expenses which will raise the profit margin of the combined company. Express Scripts believes it can save $1 billion in cost savings and gain other synergies from the merger. This is expected to slightly add to EPS in the first year after closing the deal. Furthermore, the cost-savings for Express Scripts may be more than $1 billion since U.S. regulators declined to make the two companies divest assets. Lastly, the merger diversifies and creates a more stable revenue stream as Express Scripts has had the most success targeting middle-market plan sponsors and health