* Big grocery chains ask FTC to block the deal
* FTC collecting evidence aimed at blocking deal-source
* FTC decision could come in weeks-source
* Consumer groups, state AGs have been skeptical of deal
* Express Scripts expects deal to close in early 2012
WASHINGTON, Feb 6 Objections to Express
Scripts' $29 billion plan to buy rival pharmacy
benefits manager Medco Health Solutions are accumulating
as U.S. antitrust regulators weigh whether they have enough
evidence to stop the megamerger.
The Food Marketing Institute, which represents the biggest
grocery chains, sent a letter to the Federal Trade Commission on
Feb. 2 saying the merged company would be able to cut payments
to supermarket pharmacies that already operate at very tight
"(We) ask the commission to bring an enforcement action to
enjoin the merger," the association said in its letter to FTC
Chairman Jon Leibowitz, which was seen by Reuters on Monday.
A source closely watching the deal said that key people at
the FTC believe it should be stopped but want to ensure they
have adequate evidence to win a court fight to stop it.
A decision on whether or not to sue is expected by the end
of February or early in March, the source said.
The FTC said it does not comment on pending investigations.
Pharmacy benefits managers (PBMs) like Medco and Express
Scripts are hired by insurance companies to handle prescription
drug plans. They sometimes provide drugs by mail order, through
their own pharmacies and by contracting with chains and
The deal, announced in July, would combine two of the three
largest PBMs that are big enough to manage prescription drug
benefits for large, nationwide companies. The third is CVS
A Medco-Express Scripts merger would create an industry
leader with nearly one-third of the market.
The letter from the Food Marketing Institute, which counts
Safeway, Giant, Wal-Mart and Supervalu
among its membership, adds another opposition voice.
In early January, a coalition of consumer groups, including
U.S. PIRG and the Consumer Federation of America, also urged
antitrust regulators to stop the deal.
Further, a group of about two dozen state attorneys general
are looking at the merger, and could challenge it on their own.
The FTC has been working actively to prevent increases in
health care costs. The FTC in late January sued to block
Omnicare's $441 million bid to buy rival PharMerica Corp
Omnicare and PharMerica are the top two companies in the
long-term pharmacy services sector, and the FTC said the
combination would harm competition and allow Omnicare to raise
the price of drugs for the frailest of the elderly.
Express Scripts is remaining optimistic about its own
Express Scripts has said that the deal is good for the
American consumer, and expects it will close in the first half
In a show of confidence that the deal will go through,
Express Scripts announced on Monday that it was offering a
second round of notes aimed at financing the $29 billion
Medco shares, however, have consistently traded at a
discount to Express Scripts' $71.36 per share offer, reflecting
investor caution over regulatory approval of the deal. In early
afternoon trading on Monday, Medco stock was up 12 cents at
FEARING THE SQUEEZE
The Food Marketing Institute said in its letter that "seven
of the largest supermarket chains" had met with FTC officials to
ask that the deal be stopped but did not identify the chains.
If they are squeezed financially, grocery store pharmacies
will be forced to cut back hours, end discounts for generics and
stopping giving free antibiotics and other promotions, said the
letter, which was signed by FMI vice president Cathy Polley and
regulatory counsel Erik Lieberman.
"The merger will allow the dominant PBM to control
approximately 40 percent of the overall prescription drug volume
in the United States," said the FMI letter.
The FMI argued, in addition, that the PBMs would not likely
pass along to consumers any cost savings they would achieve by
squeezing supermarket pharmacies.
Small, independent pharmacies, under pressure from big
chains, have also complained about the deal, saying that their
reimbursement rates from the big PBMs were being reduced to the
point that some felt they might not be able to stay in business.