Express Scripts Judge Denies Bid to Freeze Takeover of Medco

Express Scripts Holding Co. (ESRX) defeated a bid by retail drugstores to suspend its $29.1 billion purchase of Medco Health Solutions Inc. while a lawsuit challenging the takeover is pending.

U.S. District Judge Cathy Bissoon in Pittsburgh today said she will rule on the company’s request to dismiss the case before considering the bid for a permanent injunction sought by retail pharmacy groups. Bissoon didn’t say when she’d make either ruling. The groups didn’t present enough evidence to warrant freezing the deal, the judge said.

“Because plaintiffs have not met their burden to establish the likelihood of immediate, irreparable harm that could be alleviated by the issuance of a preliminary injunction, their motion must be denied,” Bissoon said in the ruling.

The National Association of Chain Drug Stores, the National Community Pharmacists Association and independent pharmacies sued St. Louis-based Express Scripts and Medco on March 29, arguing that the combination of the pharmacy-benefit management companies would reduce competition and make fewer services available to retail customers.

Express Scripts completed its purchase on April 2 after receiving approval from the Federal Trade Commission.

Brian Henry, a spokesman Express Scripts, said the company was pleased with the ruling. J. Robert Robertson, a lawyer for the trade groups, didn’t immediately respond to a phone call and an e-mail messages seeking comment on the ruling.

Fears Realized

The deal creates the largest pharmacy benefits manager in the U.S. Express Scripts and Franklin Lakes, New Jersey-based Medco act as middlemen among drugmakers, pharmacies and health- plan sponsors to manage patients’ benefits.

The FTC approved the purchase by a 3-1 vote. Clearance was unconditional, with the majority of the commissioners saying their eight-month review of the deal found “a competitive market for pharmacy benefit management services.”

The groups claim the Medco acquisition will force pharmacy customers into filling prescriptions by mail and result in the loss of “face-to-face pharmacy services that patients prefer,” Steven C. Anderson, president of the National Association of Chain Drug Stores, said in the conference call with reporters when the lawsuit was filed.

‘Hold Separate’

Hours after the deal closed, the groups filed an emergency request seeking an order to “hold separate Medco’s assets and operations” while the lawsuit is pending.

At an April 10 hearing, Clifford Aronson, a lawyer for Express Scripts, said more than $230 million had already been spent on integration, and competitive information had already been shared. Halting the acquisition would lead to a loss of employees and customers as health plan managers wouldn’t want to sign on companies with such uncertainty, he said.

“The injury to Express Scripts would be huge,” Aronson of Skadden, Arps, Slate, Meagher & Flom told Bissoon.

Bissoon asked Robertson at that hearing how “rolling back” the deal would work, noting that top Medco executives had already been terminated.

“Who would be running the show over Medco,” she asked?

Robertson, of Hogan Lovells LLP in Washington, said Express Scripts would have administrative control the merged company while it wouldn’t be allowed to change the rates for drugs reimbursed by Medco.

Displaced Management

Bissoon, in her ruling today, said the retailers’ fears about displaced management and the exchange of confidential information and trade secrets between the two companies have already been realized because Express Scripts and Medco began setting a detailed integration plan as early as July 2011.

By the time the merger closed, virtually all of Medco’s senior management was terminated, including the majority of its sales leadership and senior supply-chain management team, Bissoon said.

Express Scripts demonstrated that a temporary injunction “would result in a headless organization that would likely be unable to survive on its own, much less compete” against Express Scripts, Bissoon said. “This, ironically, is exactly the harm that plaintiffs seek to prevent.”

The case is National Association of Chain Drug Stores v. Express Scripts, 2:12-cv-00395, U.S. District Court, Western District of Pennsylvania (Pittsburgh).

To contact the reporters on this story: Sophia Pearson in Philadelphia at spearson3@bloomberg.net; Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net