IB Net Payout Yields Model

Net Payout Yield MedcoHealth Solutions Agrees to $29B Buyout

Great news for one of the weakest stocks in our Net Payout Yield model. Express Scripts (ESRX) agreed to purchase MedcoHealth Solutions (MHS) for $29B. The deal gives MHS shareholders $71.36 based on the closing prices on 7/20 amounting to $28.8 in cash and 0.81 shares of ESRX. Considering ESRX is up 6% today the value of the deal got much more attractive now worth nearly $74. Oddly though, MHS has only traded up to around $65 most of the day.

The nearly $9 gap suggests the market is concerned about the deal not completing. Anti-trust issues could pop up as the combined company will be a nearly $60B behemoth in the pharmacy benefits sector.  Interestingly though ESRX shareholders are excited enough about the deal to send their shares much higher. Maybe investors just aren't that good with math and are missing the share rise of ESRX and subsequent increase in the value to MHS shares in the deal.

The combined company is promising to lead the effort to lower costs of prescription medicines for American families. Not sure the government will buy that concept when reviewing the anti-trust impact but UnitedHealth's (UNH) move into this area and dropping of MHS ultimately lead to this deal. Also, CVS Caremark (CVS) is a legitimate competitor so maybe the regulatory framework shouldn't be that concerning.

Reasons for deal per ESRX PR:

Driving Out Pharmacy-Related Waste Creates Value for the Nation's Employers, Health Plans, Unions and Government Agencies
Express Scripts and Medco believe the transaction will deliver value to clients and their members, shareholders, and other stakeholders by:

  • Generating greater cost savings for patients and plan sponsors
  • Creating more efficiency in the supply chain
  • Closing gaps in care and achieving greater adherence through our combined behavioral and clinical approach
  • Utilizing our collective expertise to better manage the cost and care associated with specialty medications
  • Optimizing our ability to respond to an increasingly complex Medicare and Medicaid environment
  • Enhancing mail pharmacy technology to optimize patient care and satisfaction
  • Accelerating the research, development and deployment of trend management solutions to address inefficiencies in the marketplace
  • Continuing to advance evidence-based and safety solutions for innovative pharmaceuticals and biosimilars
  • Advancing our efforts against fraud, waste and abuse
  • Attracting other leading healthcare entities to collaborate on next-generation solutions

Disclosure: Long MHS in client and personal accounts. Please review the disclaimer page. 


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