Express Scripts soon could be area's largest company
St. Louis Business Journal
December 18, 2009
by Angela Mueller
One of the region's biggest deals in 2009 is expected to make Express Scripts the region's largest public company in 2010.
In April, Express Scripts announced its $4.7 billion acquisition of NextRx, the pharmacy benefit unit of national health insurer WellPoint Inc. The deal closed Dec. 1.
"At this pivotal moment in American health care, the strategic alliance opens new horizons for improving outcomes for members while driving down overall health-care costs," Express Scripts Chairman and Chief Executive George Paz said in a statement at the time of the closing.
The acquisition could push Express Scripts nearer to $40 billion in revenue and help it gain the top spot among the region's publicly traded companies. In 2008, Express Scripts reported $21.98 billion in revenue, while Emerson, the region's largest company, reported $24.8 billion.
The NextRx acquisition will also give Express Scripts a boost in the rankings of the nation's largest pharmacy benefits management firms. Express Scripts previously was the nation's third-largest pharmacy benefits manager, while NextRx ranked fourth. The consolidation of the two firms could help Express Scripts move into the No. 2 spot, ahead of CVS Caremark Corp. and behind Medco Health Solutions Inc.
Express Scripts has a history of growing by acquisition. The WellPoint deal is the company's seventh acquisition since 1998.
Investors have looked on the NextRx acquisition with favor, with Express Scripts stock increasing nearly 93 percent since the deal was announced. It opened at $45.29 on April 13, compared to an $87.83 opening price on Dec. 14. Express Scripts stock also recently was added to the Dow Jones Health Care Titans 30 Index, replacing Wyeth, which is being bought by Pfizer.
The NextRx acquisition includes a 10-year agreement under which Express Scripts will provide pharmacy benefits management services to Indianapolis-based WellPoint's health plan members, including home delivery and specialty services.
Express Scripts anticipates the deal will add $1 billion to earnings before interest, taxes, depreciation and amortization (EBITDA) once it is fully integrated. That would be a more than 70 percent increase from $1.38 billion in 2008.
To finance the acquisition, Express Scripts is selling 23 million shares at a price of $61 a share to raise $1.4 billion. In addition, the company launched a $2.5 billion bond offering. The company is issuing $1 billion in bonds due in 2012, $1 billion due in 2014 and $500 million due in 2019. Express Scripts will pay interest on the bonds on June 15 and Dec. 15 each year.
Fitch Ratings has assigned a "BBB" rating to the bond offering with a stable ratings outlook. Fitch believes Express Scripts' acquisition of NextRx is "strategically sound," according to a report from the ratings service.
"Express Scripts' newfound scale, efficient operations, strong service levels and tax savings should result in strong cash flow generation," the report states.
Citigroup Global Markets Inc., Credit Suisse Securities LLC and J.P. Morgan Securities Inc. will act as joint managers of the debt offering.
Express Scripts reported a 2 percent drop in profit in the third quarter on costs associated with the acquisition and with a legal settlement. The company posted a profit of $197.6 million for the three months ended Sept. 30, down from $201.9 million a year earlier. Express Scripts recorded revenue of $5.6 billion in the third quarter, up 2 percent from $5.5 billion a year ago.
