* 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 activity, byline)
By Jessica Wohl
CHICAGO, May 12 (Reuters) - 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 officer.
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 April 1999.
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 business.
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 pharmacy.
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 trade. (Reporting by Jessica Wohl, editing by Maureen Bavdek and John Wallace)