Judge delays Caremark vote; wants more details

PHILADELPHIA (Reuters) - A Delaware Chancery Court judge said on Friday that Caremark Rx Inc. CMX.N must delay a shareholder vote until the pharmacy benefit manager provides more details on its planned acquisition by CVS Corp. (CVS.N)

The judge, however, stopped short of canceling the shareholder vote outright. Caremark's hostile suitor, Express Scripts Inc. (ESRX.O) had sought a temporary restraining order to prevent the CVS-Caremark deal from proceeding as planned.

The court ordered Caremark to provide more information on appraisal rights and the structure of investment banking fees. Appraisal rights give shareholders the right to refuse a buyer's offer and to seek a fair determination of the value of their shares.

"Shareholders would suffer irreparable harm only were they to be forced to vote without knowledge of the material facts relating to the structure of bankers fees and, most importantly, their entitlement to appraisal rights," Judge William Chandler said in an order on Friday.

The shareholder vote must be delayed at least 20 days after Caremark provides more details on the transaction, the judge said.

Express Scripts and a group of Caremark shareholders had sued to prevent a shareholder vote on the Caremark-CVS deal. The plaintiffs also argued that Caremark's board breached its fiduciary duties by failing to explore other options and by including onerous protections in the merger agreement.

Although the judge said he had "suspicions about the integrity of the process underlying these merger negotiations" between Caremark and CVS, he did not rule on Caremark's fiduciary duties.

The judge said Caremark had already disclosed "the somewhat troubling aspects of the negotiation process (or lack thereof)" and Caremark shareholders had enough information on the merger talks to make a decision.

Caremark, which manages pharmacy benefits for corporations, has maintained that the $23.7 billion deal to be acquired by drugstore chain CVS would bring more value to shareholders than Express Scripts' $27.4 billion bid.

CVS announced its plans to buy Caremark in November, and Express Scripts made a higher offer in mid-December. Since then, CVS has sweetened its offer twice by planning to pay a special dividend to Caremark shareholders once the deal closes.

"So long as payment of the special dividend remains conditioned upon shareholder approval of the merger, Caremark shareholders should not be denied their appraisal rights simply because their directors are willing to collude with a favored bidder to 'launder' a cash payment," the judge said in a written opinion.

Based on Friday's closing stock prices, CVS's deal is valued at $54.24 per share, plus the $6 per share dividend. The Express Scripts offer is valued at $62.75 per share. Both offers are below Caremark's closing stock price of $63.07.

Caremark said it was pleased with the court's decision, looked forward to holding the shareholder vote and promptly closing the deal. CVS was not immediately available to comment.

Express Scripts reiterated that it was ready to open talks with Caremark.