Jan. 8 (Bloomberg) -- Express Scripts Inc. will nominate four directors to Caremark Rx Inc.'s board in an effort to push through the $26 billion hostile bid that was rejected by Caremark earlier in favor of a lower offer from CVS Corp.

Express Scripts is seeking the seats in light of the Caremark board's ``refusal to even discuss our superior proposal,'' the St. Louis-based company said in a statement today. Caremark rejected the Express Script bid by saying the deal ``would result in a highly leveraged and weakened business'' and ``insurmountable antitrust risks.''

Caremark, a manager of prescription benefits for employee health plans, accepted a $21 billion bid on Nov. 1 from CVS, the No. 2 U.S. drugstore chain. 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 rivals such as Wal-Mart Stores Inc. and Medco Health Solutions Inc.

``Express Scripts has opened up a whole new ballgame,'' said Matt Kaufler, a portfolio manager at Clover Capital Management in Rochester, New York, in a telephone interview today. ``They may need to sweeten the bid and CVS may also need to sweeten their bid.''

Kaufler said Caremark doesn't have a ``poison pill,'' or shareholder rights provision, that would make it difficult for Express Scripts to advance a hostile takeover by purchasing large blocks of Caremark shares.

``Other than the breakup fee with CVS, buying up shares shouldn't be a problem,'' Kaufler said.

Board Nominations

Express Scripts said it will nominate to the Caremark Board Stuart Bascomb, chief executive officer and chairman of Amerisight Inc.; Duke Bristow, an economist who teaches corporate finance at the University of Southern California; John Jones, a director of Topps Co., and Todd E. Warnock, founding partner of RoundTable Health Care Partners.

``Since we made our offer for Caremark public, Caremark stockholders and the marketplace as a whole have demonstrated their strong support for our offer,'' the Express Scripts statement said. ``We clearly provide Caremark stockholders with superior value to the proposed acquisition of Caremark by CVS.''

Caremark said in a Jan. 7 statement that the Express Scripts proposal ``would result in a highly leveraged and weakened business'' and ``insurmountable anti-trust risks.''

Financing

In a subsequent regulatory filing, Caremark said it rejected that offer because Express Scripts didn't ``disclose its financing.'' Caremark also said it couldn't ``envision any scenario where it would be willing to trigger the imposition of a $675 million break up fee'' to CVS ``without having a competing party obligated to fund that payment.''

Express Scripts said its acquisition would be partially financed through Citigroup and Credit Suisse. The company retained Skadden, Arps, Slate Meagher & Flom LLP as legal counsel.

Earlier in the day, Express Scripts said in a statement that Caremark was using ``antitrust as a red herring to distract stockholders from the real value differential at issue.'' Express Scripts, with a market value of $9.33 billion compared with Caremark's $24 billion, had threatened to file a proxy to take its offer directly to Caremark shareholders.

``The premium alone argues for a rejection of the current CVS bid,'' Matt Perry, an analyst with Wachovia Capital Markets LLC in New York, wrote in a Jan. 4 note to clients.

Shares

Caremark's shares rose 29 cents to $56.64 at 4:01 p.m. in New York Stock Exchange composite trading, while shares of Woonsocket, Rhode Island-based CVS rose 18 cents to $31.35. Shares of Express Scripts fell 8 cents to $68.78 in Nasdaq stock market composite trading.

Caremark's stock has climbed 17 percent since Nov. 1, when Woonsocket, Rhode Island-based CVS offered $48.53 a share. The shares have traded closer to Express Scripts' Dec. 18 offer of $58.50 each. CVS shares have gained 7.3 percent since the Nov. 1 bid, while the stock of Express Script have dropped 1.5 percent since its offer.

Caremark's directors met Dec. 22 to discuss Express Scripts' proposal and spoke again by teleconference Dec. 27 before voting unanimously to reject the offer on Jan. 5, Caremark said today in a regulatory filing.

``We look forward to closing our transaction during the first quarter of 2007,'' CVS Chief Executive Officer Tom Ryan said today in a regulatory filing. In a later filing, Ryan called the Express Scripts nomination of four directors ``nothing more than a publicity stunt.''

3Q Completion

Express Scripts said today at a meeting with investors in San Francisco that it expected its takeover of Caremark to be completed by the end of the third quarter of 2007.

``Express Scripts' latest actions illustrate its desperation to disrupt our merger with CVS due to fear of competition,'' Caremark CEO Mac Crawford said in a statement released today on Business Wire.

Employers hire Caremark and rivals to hold costs down by seeking out drug manufacturers and pharmacies with the best prices. Health insurance plans and employers are turning to such companies to help counter rising health-care costs. Spending on prescription drugs in the U.S. increased 5.4 percent to $251.8 billion in 2005.

CVS, which has 6,200 outlets in 43 states, wants to buy Caremark to gain size and power to negotiate prices with drugmakers and prevent foot traffic lost to mail-order medicines from hurting sales of razors, sodas and makeup.

The offer from Express Scripts would reduce the number of major competitors in the drug-benefits industry to two from three, CVS Chief Executive Officer Tom Ryan said in a statement last week. CVS is the fourth-biggest U.S. pharmacy-benefit manager through its PharmaCare unit.

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

Last Updated: January 8, 2007 19:16 EST