Feb. 13 (Bloomberg) -- CVS Corp., the second-biggest drugstore chain, raised its offer for Caremark Rx Inc. to $25.4 billion to stave off a hostile bid for the benefits manager from Express Scripts Inc.

CVS sweetened its proposal for the second time, raising it by $4 a share to $59.59 by tripling a cash dividend it will pay to Nashville, Tennessee-based Caremark's shareholders. Express Scripts, the third-biggest manager of prescription-drug benefits, offered $61.37 a share for Caremark, the second-biggest benefits manager.

Caremark and CVS agreed to merge in November, then a month later Caremark received a higher bid from Maryland Heights, Missouri-based Express Scripts. Investor advisory firms Institutional Shareholder Services and Glass Lewis & Co. recommended that shareholders reject Woonsocket, Rhode Island- based CVS's previous proposal on the grounds it was too low.

CVS's new offer ``makes it harder, but not impossible, for the Caremark shareholder to say no,'' said Matt Kaufler, who owns CVS shares among the $2.6 billion he helps manage at Clover Capital Management in Rochester, New York. ``I don't know that we've seen the final chapter written yet.''

CVS raised its offer once before, in January adding a $2-a- share dividend to its original offer of 1.67 shares for each share of Caremark.

`Room to Raise'

``If you look at the financing they put in place, they gave themselves some room to raise their original offer,'' said Kemp Dolliver, a Boston-based analyst at Cowen & Co., who has an ``outperform'' rating on Caremark.

Caremark shares climbed $1.97, or 3.2 percent, to $62.88 at 4:18 p.m. in New York Stock Exchange composite trading. Express Scripts rose 68 cents to $75.41 in Nasdaq Stock Market trading. Shares of CVS fell 40 cents to $32.09.

Separately, a Delaware judge ruled today to block the planned Caremark shareholder vote on the offer until March 9. Delaware Chancery Court Judge William Chandler agreed with a Louisiana pension fund's request to bar Caremark from holding the vote Feb. 20 meeting.

Caremark will tell shareholders as soon as possible a new date for its shareholder vote, the company said in a statement today. The company wants to obtain shareholder approval and ``promptly'' close this merger.

Caremark rejected Express Scripts' offer on Jan. 8, saying it was too reliant on debt. CVS plans to complete the purchase this month, while Express Scripts anticipates closing in the third quarter.

``Today's announcement can't paper over a flawed process, weaker currency, and unproven strategic rationale,'' Express Scripts said in a statement today. Express Scripts, which extended its offer to buy Caremark shares to March 16 from Feb. 16, said a combination with CVS will depress the stock price.

`Stunning Failure'

CtW Investment Group, which works with union funds holding 1.5 million Caremark shares, today rejected the increased bid, saying that it ``underscores Caremark board's stunning failure from the start to maximize shareholder value.''

CVS said in a statement it expects to complete the purchase of Caremark in ``early'' March. The company is delaying its Feb. 23 shareholder vote.

CVS estimates it would save $500 million a year in expenses by combining the businesses, and add as much as $1 billion a year in revenue by 2008.

``It's a significant action, investing a lot of money,'' said Tom Burnett, director of research at New York-based Wall Street Access and a specialist in tracking acquisitions. ``It's going to have a positive impact on getting the vote. The market anticipates a higher offer now that everything's out on the table.''

CVS and Express Scripts, which is about a third of Caremark's size, want Caremark to help them gain clout in negotiating discounts on medicine and to lure customers from Wal- Mart Stores Inc. and Medco Health Solutions Inc., the largest benefits manager.

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net

Last Updated: February 13, 2007 17:43 EST