FTC Rumored To Oppose the Medco/Express Scripts Deal
19.05.12
, And are working to build a case against it. Both stocks declined sharply on the news. We have been assuming a 40% chance that the deal receives regulatory approval and a 60% chance that it is rejected. The article did not name a source and we are maintaining all fair value estimates pending some substantiation of this rumor.
We expected the Medco/Express Scripts merger to create considerable synergies, which were incorporated in our bull-case assumptions for both companies. Assuming the deal is rejected, we would revert to our stand-alone fair value estimates, which are $60 for Medco and $53 for Express Scripts. At current trading levels, we view both companies as about fairly valued if the deal fails or meaningfully undervalued if the merger succeeds. We are not surprised by the regulatory scrutiny. Since the merger was announced, we've consistently stated that regulators were more likely than not to reject the deal due to the high degree of consolidation in the PBM industry and the Obama administration's view that competition between health-care payors is necessary for controlling health-care costs.
Source: Toronto Star