The Justice Department's anti-acquisition smackdown on AT&T (NYSE: T) might not be the end of increased government scrutiny. A growing chorus of voices might stifle the blockbuster combination of Express Scripts (Nasdaq: ESRX) and Medco Health Solutions (NYSE: MHS). It's tough to tell which direction the government will go, but a glance at recent comparable situations could give us a clue to regulators' potential decisions. Let's take a look at how these situations match up.
Tale of the tape
|
AT&T and T-Mobile |
Express Scripts and Medco | |
|---|---|---|
| Date Proposed | March 20, 2011 | July 25, 2011 |
| Proposed Price | $39 billion | $29.1 billion |
| Combined Market Cap* | $197.3 billion | $42.3 billion |
| Control of Market | 42% or 129.2 million subscribers. | 33%** or 115 million people. |
| Potential Savings | $3 billion annually | $1 billion annually |
Sources: The Motley Fool, Yahoo! Finance, and news reports. *As of 12/12/2011. **Market size varies by definition. Combined company would also be said to control 60% of the mail-order pharmacy market and 52% of the specialty pharmacy market.
Despite the tremendous difference in market cap, there aren't many major discrepancies between the two proposals. Both would create a combined company that dominates its industry, with AT&T-Mobile sharing much of the market with Verizon (NYSE: VZ) and Medco Express Scripts (or maybe that should be Express Medco Scripts) gobbling the lion's share of the pharmacy benefits management market together with CVS Caremark (NYSE: CVS).
Political pushback
The National Community Pharmacists Association has been agitating against the merger for months. It's testified before a House Judiciary subcommittee in September, held a major anti-merger press conference in November, and testified again last week before a Senate Judiciary subcommittee.
NCPA's most recent testimony stirred up negative sentiment from both The Washington Post and The New York Times, which both dump cold water on pro-merger claims of lower drug costs for consumers and worry that high-paying jobs would disappear. In response, Express Scripts and Medco funded a study that claims that the two companies save organizations and individuals between $51 billion and $87 billion annually in prescription costs.
The two companies also point out that there are some 40 prescription benefit managers in the country, including major insurer UnitedHealth (NYSE: UNH). That's a bit different than the big four in telecom, but not if a few participants control much of the market, as is still the case.
Foolish final thoughts
This fight could go either way, with a strong professional organization and major media coverage arrayed on one side and two dominant companies on the other. At this point, the ball seems to be in NCPA's court with the AT&T precedent in the rearview mirror. If you're interested in following the merger story, add the key players to your watchlist for more updates. You might also want to pick up a free trial to The Motley Fool's Stock Advisor newsletter for more complete coverage, as our flagship service tabbed Medco for success back in 2008.
