On October 31, 2006 CVS announced plans to takeover Caremark Rx, Inc. in a so-called “merger of equals.” As detailed in the letters below, the companies’ initial agreement – valued at roughly $21 billion – provided no premium to Caremark shareholders, yet guaranteed plum jobs, substantial personal windfalls and increased indemnification to Caremark insiders under investigation by the SEC and DOJ for possible stock options backdating.
The CtW Investment Group’s own analysis – communicated to the Caremark board on December 21, 2006 – indicated a substantial probability that even a majority of Caremark’s non-executive directors received backdated stock options as compensation. After further communications with the company, we hosted a February 2, 2007 forum in which institutional shareholders holding roughly 46% of the company’s shares met with the Express Scripts’ CEO George Paz, and then with CVS CEO Tom Ryan and Caremark CEO Mac Crawford jointly.
Having concluded that the Caremark board had so far failed to maximize shareholder value, on February 12, 2007 the CtW Investment Group released a public letter to Caremark shareholders urging them to vote AGAINST the proposed CVS merger.
Caremark shareholders ultimately approved the merger after CVS sweetened its offer by $3.2 billion. To ensure that Caremark’s governance failures do not harm the combined company, we continued to monitor the seven Caremark directors who joined the CVS/Caremark board, and urged shareholders to vote against the re-election of directors Roger Headrick and Lance Piccolo at the combined company’s first annual meeting in May 2007. Please click here to read more about that effort.
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