Will Another Megamerger Go off the Rails?

The Justice Department's anti-acquisition smackdown on AT&T (NYS: T) might not be the end of increased government scrutiny. A growing chorus of voices might stifle the blockbuster combination of Express Scripts (NAS: ESRX) and Medco Health Solutions (NYS: 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 (NYS: 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 (NYS: 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 (NYS: 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.

At the time thisarticle was published Fool contributor Alex Planes holds no stake in any company mentioned here. Add him on Google+ or follow him on Twitter for more insights. The Motley Fool owns shares of UnitedHealth Group. Motley Fool newsletter services have recommended buying shares of Medco Health Solutions and UnitedHealth Group; and creating a diagonal call position in 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.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.