In perhaps the most obviously beneficial merger ever, Express Scripts
That's not to say that I saw this one coming. The rivals in the pharmacy-benefits business didn't seem all that likely to tie the knot, despite the obvious synergies in a bigger-is-better industry. They're rivals, after all.
But then Medco lost contracts with California pension fund Calpers, the Federal Employees Program, and UnitedHealth Group
Pharmacy benefits managers make their money in volume, especially for their mail-order business. Sharing fixed costs over a larger number of prescriptions is just what the margin doctor ordered. All told, the companies expect to be able to cut $1 billion in costs by combining the two companies.
More importantly -- because that's only 1% of the total costs for the combined company -- the new structure should help the companies win additional contracts. The obvious loser here is CVS Caremark
Medco's investors will receive $28.80 in cash and 0.81 shares of Express Scripts in the deal. Given the obvious synergies and the drive to lower health-care costs in this country, I think investors should hold onto those sharez, and perhaps even consider using the cash to buy more shares of Express Scripts.
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Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of MedcoHealth Solutions and UnitedHealth Group. Motley Fool newsletter services have recommended buying shares of MedcoHealth Solutions and UnitedHealth Group, as well as creating a diagonal call position on UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.