March 16 (Bloomberg) -- Caremark Rx Inc., the second-largest U.S. drug-benefits manager, approved a $27 billion acquisition by pharmacy chain CVS Corp., creating the biggest combined mail- order and retail medicine provider.

With the vote today by Caremark shareholders in Nashville, Tennessee, CVS beat out a $27.5 billion takeover offer from Express Scripts Inc. to conclude a three-month bidding war. CVS holders approved the purchase yesterday. The deal will probably close next week, Caremark said.

The combination of CVS and Caremark will be more competitive with Wal-Mart Stores Inc.'s 3,850 pharmacies, which offer discounted prices on generic drugs. The acquisition will also give CVS more clout in negotiating prices with drugmakers. It may stem a decline in visits to stores as customers have turned to home delivery by companies like Caremark.

``The merger between CVS and Caremark is a revolutionary event within the health-care delivery network that should benefit payers, customers and shareholders alike,'' said William Dreher, an analyst with Deutsche Bank in New York, in a note to clients.

The combined company will operate as CVS/Caremark Corp. and be based in Woonsocket, Rhode Island, the home of CVS. As an operator of drugstores, CVS, with 6,200 locations and revenue of $43.8 billion, ranks behind Walgreen Co., with more than 5,600 stores and revenue of $47.4 billion.

`Changes Marketplace'

The shares of Caremark, based in Nashville, fell 37 cents to $62.38 at 4:00 p.m. in New York Stock Exchange composite trading. Caremark holders will get 1.67 CVS shares and a $7.50 special one-time dividend for each of their shares. Based on yesterday's price, the deal was valued at $61.68 a share.

CVS dropped 40 cents, or 1.2 percent, to $32.94. Express Scripts, based in St. Louis, rose 7 cents to $82.48 in Nasdaq Stock Market composite trading.

Express Scripts bid $29.25 in cash and 0.426 of an Express Scripts share for each Caremark share, valued at $64.36 based on yesterday's share price. That transaction wouldn't have closed before September, Express Scripts said. U.S. antitrust regulators delayed approval of the Express Scripts bid earlier this month. Express Scripts declined to raise its offer this week.

``This changes the marketplace,'' said Mac Crawford, Caremark's chief executive officer, after the shareholder meeting in Nashville. ``CVS has 5 million people a day walking into their pharmacies, but they do not have the contacts for people paying the bills. You now put together an organization that has both sides of it.''

What Caremark Does

Employers hire Caremark to keep costs down by seeking out drug manufacturers and pharmacies with the best prices. Health insurance plans and employers are turning to the companies to help counter rising drug costs. Spending on prescription medicines in the U.S. rose 5.4 percent to $251.8 billion in 2005.

The companies lower costs for health plans and employers by buying in bulk, minimizing waste in the handling of expensive biotechnology drugs and promoting generics.

Wal-Mart, responding in part to the national debate over the affordability of medicine, said in September it would charge as little as $4 for a month's supply of more than 300 generic drugs.

CVS's purchase of Caremark ``has the potential to get more patients to refill more prescriptions and bring in more revenue,'' said Matt Kaufler, who manages $2.6 billion, including CVS shares, for Clover Capital Management in Rochester, New York, in a telephone interview. ``Right now, every patient who doesn't get refills is a lost revenue opportunity.''

Medco, Express Scripts Purchases

Caremark and its competitors have been taking advantage of a flood of generic copies of brand-name drugs, such as Merck & Co.'s Zocor. Pharmacy-benefit managers can switch most of their mail-order customers from high-priced brands to low-cost generics in a matter of days or weeks.

Medco Health Solutions Inc., the biggest manager of employee prescription drug benefits by sales, bought specialty pharmacy provider Accredo Health Inc. last year, while Express Scripts, the third-biggest, acquired CuraScript Pharmacy Inc. in 2004 and Priority Healthcare Inc. last year.

To contact the reporters on this story: Lisa Rapaport in New York at Lrapaport1@bloomberg.net; Josh Fineman in New York at jfineman@bloomberg.net.

Last Updated: March 16, 2007 16:56 EDT