Medco, Express Scripts Decline on Report FTC May Block Deal: Chicago Mover

Medco Health Solutions Inc. fell the most in almost six months after Reuters reported that “key people” at the U.S. Federal Trade Commission are seeking to stop the company’s proposed $29.1 billion acquisition by rival pharmacy benefits company Express Scripts Inc.

Medco, of Franklin Lakes, New Jersey, and St. Louis-based Express Scripts said they still expect to complete the transaction in the first half of this year.

Medco declined 8.1 percent to $58.47 at the close in New York, the biggest single-day drop since Aug. 8. Express Scripts lost 4.6 percent to $49.67 in the biggest decline since Oct. 25.

Reuters reported that a “source closely watching the deal” said “key people at the FTC” believe it should be stopped. The unidentified person said an agency decision on whether to challenge the transaction is expected by late February or early March, according to the report.

“We remain confident that the merger will close in the first half of this year,” Brian Henry, an Express Scripts spokesman, said today in an interview after the publication of the Reuters story. The company continues to cooperate with the FTC as it reviews the deal, he said.

Medco also expects to complete the deal in the first half of this year, said Jennifer Luddy, a company spokeswoman.

“Medco does not comment on market rumor and speculation,” Luddy said in an e-mail. “The merger is designed to improve patient health, enhance pharmacy safety, lower costs and address waste and abuse to the benefit of our clients and patients.”

Cecelia Prewett, an FTC spokeswoman, declined to comment on the agency’s review.

Biggest PBM

Express Scripts agreed in July to buy Medco to create the biggest pharmacy benefits manager in the U.S. Pharmacy benefits managers act as middlemen among drugmakers, pharmacies and health-plan sponsors to negotiate prices and manage the use of drugs by patients.

The Medco takeover, if approved, would increase Express Scripts’ customer base by 50 percent to 135 million people, said Arthur Henderson, an analyst at Jefferies & Co. in Nashville, Tennessee. CVS Caremark Corp. of Woonsocket, Rhode Island, the next biggest pharmacy benefits manager, serves 85 million people.

Express Scripts today raised $3.5 billion in a second bond sale to help fund the acquisition. The company issued $1 billion of three-year notes, $1.5 billion of five-year debt and $1 billion of securities due in 10 years, according to data compiled by Bloomberg. Express Scripts will use the proceeds to help pay back $14 billion of bridge loans it took on for the purchase, the company said today in a statement.

‘Pretty Confident’

“If this deal were on life support,” Express Scripts probably wouldn’t have sold the additional bonds today, Henderson said in an interview. “I think we’re very close to the end of this process. I remain pretty confident that this transaction gets done.”

Express Scripts and Medco have told regulators the merged company would help reduce U.S. medical costs, a goal of the 2010 health-care law, in part by extracting lower prices from drugmakers and tracking if patients take their medicines.

The deal has drawn opposition from drug-store chains and independent pharmacists who have said Express Scripts and its competitors have done little to stop drug price increases.

The Food Marketing Institute, representing 26,000 food stores and 14,000 pharmacies, urged the FTC to challenge the merger. The combined company would “harm supermarket pharmacies by significantly reducing reimbursement rates,” the group said in a Feb. 2 letter to FTC Chairman Jon Leibowitz.

To contact the reporter on this story: Molly Peterson in Washington at mpeterson9@bloomberg.net

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net

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