Medco shareholders approve purchase by Express Scripts

Wed Dec 21, 2011 2:15pm EST

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(Reuters) - Medco Health Solutions Inc's MHS.N shareholders overwhelmingly approved the company's $29 billion acquisition by rival pharmacy benefit manager Express Scripts Inc (ESRX.O) as concerns ease over whether regulators will allow the deal.

The merger of the two largest U.S. managers of prescription drug benefits would create the clear leader in the field, giving the combined company even more leverage to negotiate better prices with drugstores and pharmaceutical companies.

With 72 percent of the shares voted at a special stockholders meeting on Wednesday, 99 percent supported the deal based on a preliminary count, Medco said. Express Scripts shareholders approved the purchase at a separate meeting on Wednesday.

Medco expects the deal to close in the first half of 2012. The main concern has been whether the U.S. Federal Trade Commission will sign off on the transaction.

Pharmacy benefit managers, or PBMs, administer drug benefits for employers and health plans, and run extensive mail-order pharmacies.

Community pharmacists and consumer advocates have complained about the deal, saying additional concentration in the industry may end up costing people more when they fill their prescriptions. Some also fear Medco and Express Scripts will push more people to get their medicine by mail, limiting access.

But investor are now less concerned about the deal being blocked. Medco shares trade at a roughly 17 percent discount to the offer price, but that gap has narrowed from as much as 27 percent in recent months, even as regulators have scuttled another high-profile deal, AT&T's (T.N) $39 billion bid for Deutsche Telekom's (DTEGn.DE) T-Mobile.

Jefferies & Co analyst Arthur Henderson said Express Scripts and Medco had boosted confidence in their deal when they made recent presentations in Congress showing how they will help lower U.S. healthcare costs, by the far the highest worldwide.

Express Scripts' ability to secure financing for the deal also helped, Henderson said.

Separately, Express Scripts has been battling Walgreen Co (WAG.N), the largest U.S. drugstore chain, for several months over reimbursement rates.

Walgreen said on Wednesday that it did not plan to renew its Express Scripts contract, which is set to expire on December 31, and would leave the PBM's network.

Walgreen Chief Executive Officer Greg Wasson told analysts on a conference call that he made a "serious attempt" to reach an agreement last week and Express Scripts' response was not meaningful. An Express Scripts spokesman said the company "would welcome Walgreens in our network, but at rates and terms that are right for our clients."

Henderson said that some investors may be concerned that Walgreen's vocal complaints about its contract with Express Scripts could hurt the PBM's regulatory efforts to complete the Medco deal.

Medco shares were down 0.2 percent at $55.43 in afternoon trading, while Express Scripts shares were off 0.5 percent at $44.34.

(Reporting By Lewis Krauskopf; Editing by Michele Gershberg, Gerald E. McCormick and Lisa Von Ahn)

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