The wait might finally be over. Pharmacy benefits management heavyweights Express Scripts (NAS: ESRX) and Medco Health Solutions (NYS: MHS) may get the long-awaited regulatory approval to merge businesses as early as next week. Last July, Express had agreed to buy Medco for a proposed $29.1 billion. Since then they have been fighting antitrust concerns that seem to have died down for the time being.
A significant merger indeed
The merged unit is slated to serve upward of 115 million customers and can earn a whopping $110 billion a year.
The combination will create the largest pharmacy benefits operator in the U.S. and control nearly one-third of the market. Most customers and regulators feared that the deal would create a monopoly in the market and could mean that the two together may unfairly drive up prices. However, Express has argued that the deal between the two will give consumers greater power to bargain over prices.
The merger could increase efficiency, as the company will have a wider reach without incurring any extra costs.
The merger has an edge
Along with Express and Medco, CVS Caremark (NYS: CVS) is one of the three largest pharmacy benefits operators in the U.S. In fact, CVS is the largest specialty pharmacy retailer. But CVS Caremark's pricing coming under question recently could work in favor of the Express-Medco merger.
CVS just fought its own battle with the Federal Trade Commission and was made to pay $5 million to the FTC to compensate for having manipulated the prices of some Medicare Part D prescription drugs. This may allow Express and Medco to gain more market share and steal CVS's customers away.
One gains, the other loses
One retailer that will surely lose out from this merger is Deerfield-based drug retailer Walgreen (NYS: WAG) . Walgreen split up with its PBM Express Scripts as the two were unable to come to an amicable agreement. Express' contribution was more than 10% of the total number of prescriptions filled by Walgreen last year. A merger could also mean that the drug retailer may end up ruining its relationship with Medco. Walgreen is set to fill 108 million prescriptions for Medco members this year, and around 74 million of them next year. But a merger may change all that.
We'll know soon, if the two get regulatory approval to merge. It may be a good time to take a close look at the two as they try to change the face of the pharmacy benefits space. To keep tabs on the impending merger, click on the links below to add the stocks to your free watchlist, and we at the Motley Fool will keep you updated on the latest happenings.
At the time thisarticle was published Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above. Motley Fool newsletter services have recommended buying shares of Medco Health Solutions. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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