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Delaware judge further delays vote on Caremark deal pending more details

WILMINGTON, Del. — A Delaware judge delayed a shareholder vote on CVS Corp.’s bid for pharmacy benefits manager Caremark Rx Inc. until after Caremark releases more details of the bid.

Chancellor William B. Chandler III delayed a scheduled March 9 vote by Caremark shareholders until 20 days after the company provides more information on eight different issues raised by the plaintiffs, pension funds that claims the CVS bid is not the best value for shareholders.

The judge also refused invalidate a $675 million breakup fee aimed at protecting the proposed acquisition.

Shareholders also must be informed that $35 million in payments to Caremark’s investment bankers are contingent on the bankers issuing favorable recommendations about the merger with CVS.

“At this stage, however, no broader injunction is necessary,” Chandler wrote in a 38-page opinion.

Woonsocket, R.I.-based CVS, the nation’s largest retail pharmacy chain, announced Nov. 1 that it planned to acquire Nashville-based Caremark for about $21.2 billion in stock.

Attorneys for rival benefits manager Express Scripts Inc. of Maryland Heights, Mo., and two Caremark institutional shareholders, a Pennsylvania Masons lodge and a Louisiana police pension fund, challenged CVS the deal in court.

They argued that Caremark directors had failed to negotiate the best deal for their shareholders, and that the proposal contained unfair protection measures aimed at dissuading other bidders for Caremark.

“Only in extraordinary circumstances will this court substitute its business judgment for that of directors, or usurp the rights of shareholders to make their own informed decisions,” Chandler wrote in denying a preliminary injunction sought by the plaintiffs. “ … Although plaintiffs allege facts concerning the process by which the deal was negotiated that trouble the court, very few of their arguments suggest that I am in a better position than Caremark’s shareholders to make the ultimate decision.”

Opponents said the CVS deal instead was designed to benefit Caremark executives and board members by giving many of them lucrative positions at the combined company and allowing them to avoid possible civil liability resulting from a Securities and Exchange Commission investigation into backdating of stock options.

In December, Express Scripts made a $26 billion stock and cash bid for Caremark. CVS countered by sweetening its stock offer by offering a $2 cash dividend.

Caremark rejected the Express Scripts bid, reportedly because it was too conditional and faced possible antitrust hurdles. Caremark attorneys also said the company was focused on a vertical integration with the nation’s largest retail pharmacy chain and not a horizontal merger with a rival pharmacy benefits manager.

Last week, Chandler postponed a scheduled Feb. 20 Caremark shareholder meeting to vote on the CVS merger until at least March 9. The ruling came after CVS offered to triple the cash dividend it would pay to Caremark shareholders of the Nashville-based Caremark from $2 to $6 per share. CVS subsequently postponed its own shareholder vote, which had been scheduled for Friday.

The increased dividend offered by CVS added about $1.7 billion in value to the proposed deal, bringing it closer in value to the Express Scripts bid.