Dec. 18 (Bloomberg) -- Express Scripts Inc. made an unsolicited offer of $26 billion for Caremark Rx Inc. to become the biggest U.S. manager of drug benefits, topping a bid by drugstore chain CVS Corp.

Caremark investors would receive $58.50 in cash and stock for each share, 15 percent more than the Dec. 15 closing price, St. Louis, Missouri-based Express Scripts said today. CVS agreed Nov. 1 to buy Caremark for $48.53 a share, offering no premium.

``The perception before was that Caremark was selling out cheaply,'' said Kemp Dolliver, an analyst with Cowen & Co. in Boston, in a phone interview. Shares of Nashville, Tennessee- based Caremark rose $5.28, or 11 percent, to close at $55.58 in New York Stock Exchange composite trading.

Acquiring Caremark would give Express Scripts more clout in negotiating discounts with drugmakers such as Merck & Co. Its revenue would triple to $49 billion, surpassing Medco Health Solutions Inc.'s $37.9 billion. Pharmacy benefit managers act as intermediaries between health insurers and drugmakers.

Express Scripts, based in Maryland Heights, Missouri, would also get a bigger share of the $35 billion annual market for specialty biotech drugs, which can generate higher profits because distributors can sell equipment and services that pill- takers don't need. The drugs are often fragile and need to be injected or given intravenously.

Caremark had specialty-drug revenue of $3 billion last year, according to spokeswoman Susan Bro. Express Scripts more than doubled its biotech prescription revenue to $1.6 billion.

Express Scripts Borrowing

Holders of Caremark would get half the purchase price in cash and half in Express Scripts stock. The acquiring company would borrow $13.4 billion from Citigroup Corporate and Investment Banking and Credit Suisse, more than its market value of $9.1 billion.

Express Scripts has no publicly traded debt, according to Trace, the bond reporting service of the NASD, and in the third quarter reported long-term liabilities of $576.7 million.

Merging the companies' operations would generate $500 million in annual cost savings, Express Scripts said. Caremark reported 13,600 employees as of Dec. 31, while Express Scripts had 14,000. The acquisition wouldn't affect earnings in the first year and would boost them afterwards, Express Scripts said.

Shares of Express Scripts rose $1.31, or 1.9 percent, to $69.97 as of 4 p.m. New York time in Nasdaq Stock Market composite trading. The stock has lost 20 percent in the past 12 months, underperforming a 4.7 percent gain in the 55-member Standard & Poor's Health Care Index.

CVS Shares Fall

Shares of Woonsocket, Rhode Island-based CVS fell 52 cents to close at $30.00 in New York Stock Exchange composite trading. The stock lost 7.4 percent on Nov. 1 when the agreement to acquire Caremark was announced.

CVS offered to exchange 1.67 of its shares for each Caremark share. That bid values Caremark at $50.92 a share based on Friday's closing price.

``The fear out there is what is CVS going to do right now,'' said Christopher Meeker, an analyst with Farr Miller & Washington LLC in Washington, which manages $560 million, including more than 300,000 CVS shares. ``CVS hasn't come out and given us a real good rationale for doing the deal.''

If CVS were to match the Express Scripts offer, it might dilute CVS's earnings by 7 cents a share in 2007, Meeker estimated.

CVS Response

CVS said in a statement that it hasn't had a chance to review the Express Scripts offer carefully. Even so, the prospects ``are excellent'' for CVS to prevail, the company said. ``We remain confident in the long-term strategic value of our combination as well as the benefit to shareholders of CVS and Caremark.''

Caremark said it will review the Express Scripts offer. The company ``continues to be bound'' by the terms of its CVS agreement, ``and the parties anticipate filing a joint proxy statement with the Securities and Exchange Commission shortly,'' Caremark said in a statement.

George Paz, chairman and chief executive officer of Express Scripts, said in a letter to Caremark CEO Edwin ``Mac'' Crawford that Express ``would unquestionably prefer to work cooperatively.''

``Alternatively, we are prepared to take our transaction directly to your stockholders,'' Paz wrote. ``You should also know that we are prepared to solicit proxies against approval of your proposed merger with CVS.''

Mail-Order Drugs

CVS, the second-largest U.S. chain of retail drugstores with 6,200 outlets in 43 states, wants Caremark to gain more leverage in negotiating prices with drugmakers and to support sales of razors, sodas and makeup that might be hurt by a loss of foot traffic to mail-order pharmacies.

Drug-benefit managers like Caremark steer patients toward low-cost generics sold by mail, taking millions of customers away from drugstores. Last year, Express Scripts reported filling 40.2 million mail-order prescriptions for a three-month supply and 437 million at retail stores for 30 days of drugs. Caremark said it filled 58.3 million by mail and 478 million at retail.

If Caremark scuttles the CVS deal because of a competing offer, CVS would be entitled to a breakup fee of $675 million, CVS Chief Financial David Rickard said in an interview last month.

Express Scripts is offering $29.25 in cash and 0.426 Express Scripts share for each Caremark share. It has bought five companies since 1998 to gain sales of high-priced biotechnology drugs and other medicines. The most recent acquisitions include CuraScript Pharmacy Inc. in 2004 and Priority Healthcare Inc. last year.

To contact the reporters on this story: John Lauerman in Boston at jlauerman@bloomberg.net; Lisa Rapaport in New York at lrapaport1@bloomberg.net.

Last Updated: December 18, 2006 16:15 EST