* Thomas Ryan to step down from CEO post in May 2011
* Larry Merlo becomes president and COO, set to become CEO
* Company forms an office of the chairman
* Shares up 0.4 percent to $35.90
(Adds comments from CEO and analysts, background, stock
By Jessica Wohl
CHICAGO, May 12 CVS Caremark Corp (CVS.N) said
Thomas Ryan will step down from the post of chief executive
officer in May 2011 and be succeeded by Larry Merlo, who for
now will fill the roles of president and chief operating
Ryan, who turns 58 in August, has been with CVS for 36
years since starting as an in-store pharmacist. He became
president and CEO in May 1998 and added the chairmanship in
His tenure has been marked by major expansion both in the
number of drugstores CVS runs and into various health services
such as in-store clinics. Lately, though, CVS has come under
fire for its 2007 acquisition of Caremark Rx Inc, including
investigations by the U.S. Federal Trade Commission and state
attorneys general. [ID:nN04122567]
While the timing came as a surprise, choosing Merlo to fill
the CEO post "is not entirely surprising," said JP Morgan
analyst Lisa Gill.
Ryan said he decided to announce his retirement plans now
because "the company's never been better positioned in the
marketplace than we are today.
"We have the right assets, we have the right strategy," he
told shareholders at the company's annual meeting at its
Woonsocket, Rhode Island, headquarters Wednesday morning.
Merlo, 54, also gains a role on the company's board. He has
been with CVS for 20 years, since the it bought the Peoples
Drug chain, and most recently served as president of retail
operations, overseeing more than 7,000 stores.
CVS is starting a search for Merlo's successor. It has
"excellent" internal candidates and will look outside the
company as well, Ryan said.
"The loss of Mr. Ryan will be felt, but we believe the
company is headed in the right direction," said Jefferies
analyst Scott Mushkin.
Merlo will be only the fourth CEO in the history of CVS,
which got its start when brothers Stanley and Sidney Goldstein,
along with Ralph Hoagland, opened their first CVS store in
Lowell, Massachusetts. CVS stood for Consumer Value Stores and
at that time sold health and beauty products. CVS added stores
with pharmacy departments in 1967.
CVS said it is creating an office of the chairman, which
includes Ryan, Merlo and Per Lofberg. Lofberg joined the
company as president of the PBM business in January as the
company tried to improve operations in that side of the
CVS bought Caremark for $27 billion to drastically expand
its PBM, which administers prescription drug benefits for
employers and health plans and operates a large mail-order
Late last year, the PBM lost $4.8 billion in contracts
heading into 2010, and the president of the unit departed. At
the same time, CVS disclosed that the FTC was investigating
some business practices of the combined company, leading many
to question whether the merger made sense. [ID:nN06179379]
Since then, CVS has done its best to fix the business,
bringing in veteran PBM executive Lofberg and changing the way
it pitches to clients.
The FTC probe continues, as does an investigation by 24
states, the District of Columbia and the county of Los Angeles.
CVS also received a subpoena from the Office of Inspector
General of the Department of Health and Human Services related
to an investigation of possible false or otherwise improper
claims for payment under Medicare and Medicaid.
And last month, CtW Investment Group asked U.S. regulators
to conduct an inquiry into what it called insider transactions
by CVS executives, including Ryan. CVS said those allegations
would be shown to lack merit. [ID:nN22113422]
Shares of CVS rose 0.4 percent to $35.90 in late-morning
(Reporting by Jessica Wohl, editing by Maureen Bavdek and John