Filed by CVS Corporation
pursuant
to Rule 425 under the
Securities Act of 1933 and deemed
filed pursuant to Rule
14a-12 of
the Securities Exchange Act of 1934
Subject Company: Caremark Rx, Inc.
Commission File No.:
001-14200
Creating the Premier Pharmacy Services Provider
January 2007
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CVS/Caremark Merger Overview
Name:
Symbol:
Management Team:
Board Composition:
Headquarters:
Expected Closing:
CVS/Caremark Corporation
To be listed on NYSE under "CVS"
o Mac Crawford - Chairman
o Tom Ryan - President and CEO
o Dave Rickard - CFO
o Howard McLure - President Caremark Pharmacy Services
50/50 split
Corporate: Woonsocket, RI / PBM: Nashville, TN
February 2007
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CVS/Caremark Merger Capitalizes on Evolving Industry Trends
Market Trends
Cost Containment
Growing Consumerism
Cost Shift to Consumer
Focus on Wellness
Medicare Part D
Robust Generic Pipeline
Specialty Products
CVS/Caremark Merger Benefit
Purchasing advantage, operating efficiencies and improved access to pharmacist
with full view of patient records will lower costs Gives consumers timely,
actionable, personalized information to improve healthcare outcomes More
transparency at point of sale - consumer able to make totally informed
decisions Consultation by pharmacist or clinician with participant = favorable
healthcare outcomes In-store enrollment and consultation; Medication Therapy
Management Higher substitution rates at point of sale lowers cost and drives
high margin generics Retail locations; In-store enrollment and consultation
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CVS/Caremark Merger is in Best Interest of Shareholders, Customers and
Consumers
o Significant strategic benefits
o Financial benefits are substantial and concrete
o Anti-trust clearance; February 2007 close
o Realize benefits in 2007 selling season
o Strong investment grade credit; 150M share repurchase (~10%)
o Proven management teams
CVS/Caremark Merger Enhances Shareholder Value
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CVS/Caremark Merger Enhances Shareholder Value
Compelling Strategic Benefits
o Uniquely positioned to capitalize on evolving trends
o Superior upside in creation of new services and products
o Better control over costs for payors
o Improves choice and accessibility, and promotes better
health outcomes for consumers
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CVS/Caremark Merger Enhances Shareholder Value
Compelling Strategic Benefits
o Uniquely positioned to capitalize on evolving trends
o Superior upside in creation of new services and products
o Better control over costs for payors
o Improves choice and accessibility, and promotes better health
outcomes for consumers
Substantial Financial Benefits
o Double-digit cents-per-share accretion and higher ROE in 2008
o $500 million in conservatively estimated cost synergies
o Incremental revenue opportunities of $800M to $1B in 2008 with
significant growth thereafter
o Special $2.00 cash dividend per share to CMX shareholders (upon or
promptly after closing)
o Commitment to a post-merger 150 million share retirement
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CVS/Caremark Merger Enhances Shareholder Value
Compelling Strategic Benefits
o Uniquely positioned to capitalize on evolving trends
o Superior upside in creation of new services and products
o Better control over costs for payors
o Improves choice and accessibility, and promotes better health
outcomes for consumers
Substantial Financial Benefits
o Double-digit cents-per-share accretion and higher ROE in 2008
o $500 million in conservatively estimated cost synergies
o Incremental revenue opportunities from $800M to $1B in 2008 with
significant growth thereafter
o Special $2.00 cash dividend per share to CMX shareholders
(upon or promptly after closing)
o Commitment to post-merger 150 million share retirement
Clear Path to Close
o Received FTC clearance
o Expect to close February 2007
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CVS/Caremark Merger Enhances Shareholder Value
Compelling Strategic Benefits
Substantial Financial Benefits
Clear Path to Close
Enhanced Business Opportunity
o Uniquely positioned to capitalize on evolving trends
o Superior upside in creation of new services and products
o Better control over costs for payors
o Improves choice and accessibility, and promotes better health outcomes
for consumers
o Double-digit cents-per-share accretion and higher ROE in 2008
o $500 million in conservatively estimated cost synergies
o Incremental revenue opportunities from $800M to $1B in 2008 with
significant growth thereafter
o Special $2.00 cash dividend per share to CMX shareholders
(upon or promptly after closing)
o Commitment to a post-merger 150 million share retirement
o Received FTC clearance
o Expect to close February 2007
o Clients overwhelmingly positive
o New products/services should lead to greater retention/contract wins
o Benefits realized in 2007 selling season
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CVS/Caremark Merger Enhances Shareholder Value
Compelling Strategic Benefits
"Uniquely positioned to capitalize on evolving trends "Superior upside in
creation of new services and products "Better control over costs for payors
"Improves choice and accessibility, and promotes better health outcomes for
consumers
Substantial Financial Benefits
"Double -digit cents-per-share accretion and higher ROE in 2008 "$500 million
in conservatively estimated cost synergies
"Incremental revenue opportunities from $800M to $1B in 2008 with significant
growth thereafter "Special $2.00 cash dividend per share to CMX shareholders
(upon or promptly after closing) "Commitment to a post-merger 150 million share
retirement
Clear Path to Close
"Received FTC clearance
"Expect to close February 2007
Enhanced Business Opportunity
"Clients overwhelmingly positive
"New products/services should lead to greater retention/contract wins "Benefits
realized in 2007 selling season
Financial Flexibility
"Strong investment grade credit rating
"Substantial FCF from retail and PBM enables strategic investments, dividends
and share repurchases
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CVS/Caremark Merger Enhances Shareholder Value
Compelling Strategic Benefits
"Uniquely positioned to capitalize on evolving trends "Superior upside in
creation of new services and products "Better control over costs for payors
"Improves choice and accessibility, and promotes better health outcomes for
consumers
Substantial Financial Benefits
"Double -digit cents-per-share accretion and higher ROE in 2008 "$500 million
in conservatively estimated cost synergies
"Incremental revenue opportunities from $800M to $1B in 2008 with significant
growth thereafter "Special $2.00 cash dividend per share to CMX shareholders
(upon or promptly after closing) "Commitment to a post-merger 150 million share
retirement
Clear Path to Close
"Received FTC clearance
"Expect to close February 2007
Enhanced Business Opportunity
"Clients overwhelmingly positive
"New products/ services should lead to greater retention/contract wins
"Benefits realized in 2007 selling season
Financial Flexibility
"Strong investment grade credit rating
"Substantial FCF from retail and PBM enables strategic investments, dividends
and share repurchases
Management Teams
Proven track-records with large-scale acquisition integration History of
exceeding stated synergies
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Near-Term Sources of Revenue That Only a CVS/Caremark Combination Can Derive
Incremental revenue opportunities from $800M to $1B in 2008; significant growth
thereafter
Examples include:
In-store pickup for mail customers and targeted retail-to-mail conversion
Front-store offers for PBM members in-store, online and via mail Improved
generic substitution and compliance to formularies and drug therapies Enhanced
offering for PBM specialty members through access to select CVS retail
pharmacies, 52 PharmaCare specialty pharmacy stores and MinuteClinics Improved
disease management programs through face-to-face treatment Integrated retail /
mail / specialty / MinuteClinic services for PBM customers Ability to leverage
CVS marketing capabilities for products targeted to consumers
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Superior Financial Profile
Strong investment grade credit rating
Pro forma LTM
Revenue $ 72,896
EBITDA $ 4,306
% Margin 5.9%
Net Income $ 2,420
Debt / EBITDA 1.5x
Free Cash Flow $ 1,899
Note -- Based on the simple addition of reported results for the last twelve
months ended September 30, 2006 with an adjustment of $4.4 billion for
intercompany revenues.
Note -- Pre-impact of share repurchase
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A Clearly Superior Offer
Significant strategic benefits Substantial financial benefits Clients
supportive February 2007 close Strong management team Successful large-scale
integrations
Highly conditional offer No strategic advantage Financial benefits suspect
Client attrition Uncertain timing, IF EVER CMX would be 20x the largest
integration ESRX has ever done
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Dispelling the Myths
MYTH
REALITY
Incentive Alignment " We "make money when patients " Well understood that
retail and PBM incentives are and clients spend money" aligned with patients
and payors " Integrated offering delivers more value to clients
Financial Flexibility " ESRX would have "significant " Financing contemplates
JUNK CREDIT financial flexibility" " Leverage: ~5x Debt-to-2006 EBITDA
" Limited, if any, ability to do share repurchases / pay dividends
Contract Wins/Losses " "In past 3 years, twice as many " $1B in net new
revenues have moved from ESRX to CMX clients have moved to CMX in 3 years ESRX
than vice versa"
Channel Choice " CVS/CMX would be "biased to " CMX to offer clients network of
60,000 pharmacies its own stores" " Value and choice will drive business "
PharmaCare doesn't favor CVS stores now
Regulatory Approval " ESRX is confident that the " "3 into 2" mergers face
significant antitrust obstacles and
"regulatory requirements will delays be met in a timely manner" " Heavy large
employer concentration may trigger concern
Vertical Mergers " "Vertical PBM transactions " Comparisons to former vertical
mergers not applicable Destroy Value have failed to create " Integration of
leading pharmacy retailer with leading stockholder value" PBM addresses
evolving marketplace needs
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CVS/CMX Provides Immediate, Superior Value
Offer Pro Forma CMX Ownership Targeted Annual Cost Synergies Incremental
Revenue Opportunities Anticipated 2008 Accretion Expected Closing Selling
Season Conditions to Close
o 1.67 shares of CVS for each CMX of CMX
o $2.00 per share in special cash dividend to CMX shareholders
(upon or promptly after closing)
o 45.5%
o $500M+
o $800M to $1B in '08; higher thereafter
o Double-digit cents-per-share
o February 2007
o 2007
o CVS shareholder vote
o CMX shareholder vote
ESRX
o 0.426 shares of ESRX for each share of CMX
o $29.25 in cash per share
o 57.0%
o $500M (unsubstantiated)
o None, likely negative
o None
o Q307 at earliest, IF EVER
o 2008, perhaps 2009
o Financing
o Due diligence
o ESRX shareholder vote
o CMX board/shareholder approval
o FTC/SEC approval
o Absence of adverse change affecting CMX value to ESRX
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with Certainty to Close vs. ESRX's Highly Conditional Offer
Timing Regulatory Due Diligence CMX Board of Director Approval Financing
Termination of Existing CVS/CMX Merger-of-Equal Agreement
Shareholder Approval
CVS/CMX Merger
o February 2007
o Approval received without second request
o Not a condition
o Approved
o Not a condition
o Not applicable
o CMX: February 20
o CVS: February 23
ESRX Hostile
o Uncertain, IF EVER
o Antitrust clearance will involve substantial delay / may well
prevent closing
o None, is a condition for both ESRX and its lenders
o Required - CMX board previously found ESRX offer not superior /
unlikely to lead to superior offer
o Offer conditioned on financing; financing conditioned on due diligence
o Financing contemplates junk credit
o Required, with $675M breakup fee
o High likelihood of delay and real risk of NEVER being approved
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CVS/Caremark: The Right Combination
o Significant strategic benefits
o Financial benefits are substantial and concrete
o Anti-trust clearance; February 2007 close
o Realize benefits in 2007 selling season
o Strong investment grade credit; 150M share repurchase (~10%)
o Proven management teams
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Cautionary Statement Regarding Forward-Looking Statements
This document contains certain forward-looking statements about CVS and
Caremark. When used in this document, the words "anticipates", "may", "can",
"believes", "expects", "projects", "intends", "likely", "will", "to be" and any
similar expressions and any other statements that are not historical facts, in
each case as they relate to CVS or Caremark or to the combined company, the
management of either such company or the combined company or the transaction
are intended to identify those assertions as forward-looking statements. In
making any of those statements, the person making them believes that its
expectations are based on reasonable assumptions. However, any such statement
may be influenced by factors that could cause actual outcomes and results to be
materially different from those projected or anticipated. These forward-looking
statements, including, without limitation, statements relating to anticipated
accretion, return on equity, cost synergies, incremental revenues and new
products and offerings, are subject to numerous risks and uncertainties. There
are various important factors that could cause actual results to differ
materially from those in any such forward-looking statements, many of which are
beyond the control of CVS and Caremark, including macroeconomic condition and
general industry conditions such as the competitive environment for retail
pharmacy and pharmacy benefit management companies, regulatory and litigation
matters and risks, legislative developments, changes in tax and other laws and
the effect of changes in general economic conditions, the risk that a condition
to closing of the transaction may not be satisfied, the risk that a regulatory
approval that may be required for the transaction is not obtained or is
obtained subject to conditions that are not anticipated and other risks to
consummation of the transaction. The actual results or performance by CVS or
Caremark, or the combined company, and issues relating to the transaction,
could differ materially from those expressed in, or implied by, any
forward-looking statements relating to those matters. Accordingly, no
assurances can be given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of them do so,
what impact they will have on the results of operations or financial condition
of CVS or Caremark, the combined company or the transaction. This presentation
may include certain non-GAAP financial measures as defined under SEC rules. A
reconciliation to the most directly comparable GAAP measures can be found in
the footnotes to the tables attached to Caremark's latest quarterly earnings
press release and certain supplemental information is provided on
caremarkrx.com (applicable slides are footnoted).
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Important Information
CVS and Caremark have filed a preliminary joint proxy statement/prospectus with
the SEC in connection with the proposed merger. CVS and Caremark urge investors
and stockholders to read the joint proxy statement/prospectus when it becomes
available and any other relevant documents filed by either party with the SEC
because they will contain important information. Investors and stockholders
will be able to obtain the joint proxy statement / prospectus and other
documents filed with the SEC free of charge at the website maintained by the
SEC at www.sec.gov. In addition, documents filed with the SEC by CVS will
available free of charge on the investor relations portion of the CVS website
at http://investor.cvs.com. Documents filed with the SEC by Caremark will be
available free of charge on the investor relations portion of the Caremark
website at www.caremark.com. CVS, and certain of its directors and executive
officers are participants in the solicitation of proxies from the stockholders
of CVS in connection with the merger. A description of the interests of CVS's
directors and executive officers in CVS is set forth in the proxy statement for
CVS's 2006 annual meeting of stockholders, which was filed with the SEC on
March 24, 2006 and in the preliminary joint proxy/prospectus referred to above.
Caremark, and certain of its directors and executive officers may be deemed to
be participants in the solicitation of proxies from its stockholders in
connection with the merger. A description of the interests of Caremark's
directors and executive officers in Caremark is set forth in the proxy
statement for Caremark's 2006 annual meeting of stockholders, which was filed
with the SEC on April 7, 2006 and in the preliminary joint proxy
statement/prospectus referred to above. To the extent that any of the Caremark
or CVS participants will receive any additional benefits in connection with the
merger, the details of those benefits are described in the definitive joint
proxy statement/prospectus relating to the merger. Investors and stockholders
can obtain more detailed information regarding the direct and indirect
interests of CVS's and Caremark's directors and executive officers in the
merger by reading the definitive joint proxy statement/prospectus.
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Creating the Premier Pharmacy Services Provider
January 2007
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