On July 7 on this blog, I commented upon the fact that Medco was likely to lose one of its major customers – United Healthcare. Two weeks later it is being swallowed up by a smaller competitor (at least based on revenues).
Express Scripts offered $71.36/share, in a part-cash, part-stock deal. This is an approximate 28% premium over Medco’s pre-announcement closing price of $55.78. Too much?
The combined companies expect $1 billion in savings (cost reductions). Analysts expect more – possibly $2 billion. With approximately 400 million Medco shares outstanding, Express Scripts is paying approximately $6 billion for the synergies (400M * ($71.36-$55.78)). If the synergies do not develop, then they will have overpaid. However, if they do, the multiple seems quite reasonable.
Will they get a chance to execute their plan? The Federal Trade Commission has to approve the deal. We shall see.