Express Scripts, Inc. (ESRX), one of North America's largest pharmacy benefits management, or PBM, companies, Monday, announced the signing of a definitive agreement to acquire health insurer WellPoint Inc.'s (WLP) NextRx subsidiaries for $4.675 billion, including consideration for the value of a future tax benefit for Express Scripts based on the pact structure.

The deal also includes a 10-year contract for Express Scripts to provide services to WellPoint following closing, expected in the second half of 2009, subject to customary closing conditions and the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.

Indianapolis, Indiana-based WellPoint NextRx subsidiaries provide PBM services to around 25 million Americans and manage over 265 million adjusted prescriptions yearly.

St. Louis, Missouri-based Express Scripts noted that WellPoint will retain control of medical policy, formulary, and integrated disease management, and will work alongside the company in offering best-in-class pharmacy management and data analytics.

Express Scripts envisages the pact to provide game-changing capabilities to tackle the nation's priorities to improve health outcomes and reduce waste. It said that WellPoint members will gain access to better Web, home delivery, and customer service capabilities, whereas clients will benefit from enhanced reporting.

Commenting on the deal, Express Scripts' chairman and chief executive officer George Paz said, Now more than ever, as the nation focuses on health care reform, this collaboration between Express Scripts and WellPoint represents a shared commitment to achieving optimal health outcomes while driving out wasteful spending.

Paz added, As we apply our advanced understanding of consumer behavior to an additional 25 million members, and manage more than 750 million adjusted prescriptions annually, we will optimize the cross-selling of proven trend management tools such as generics, home delivery and specialty pharmacy. This alliance also creates the potential to leverage our behavior-centric approach across the medical benefit.

WellPoint's president and CEO Angela Braly pointed out, As health care costs continue to be a concern to our customers, members and the nation as a whole, we are very focused on initiatives that keep health benefits affordable.

According to a Wall Street Journal report on Monday, the deal would give Express Scripts more heft to compete against bigger rivals in negotiating drug prices and room to expand its lucrative mail-order pharmacy business. Express Scripts is buying the business with a mixture of cash and up to $1.4 billion in stock, the Journal added.

Health insurers are already under pressure from last year's difficult trading conditions stemming from the recessionary environment and its continuance into 2009. Shares of these companies have taken a further toll in recent weeks following Obama administration's announcement of potential health reform measures.

WellPoint, on February 24, had provided earnings outlook for fiscal 2009, well below analysts' expectations. The company noted that the outlook reflects a further increase in unemployment rates. For fiscal 2009, the company anticipates earnings of $5.51 to $5.66 per share, representing a growth of 1% to 3% over adjusted earnings of $5.48 per share in 2008. Operating revenue is expected to grow by about $400 million or 1% in 2009. Analysts polled by Thomson Reuters currently expect the company to earn $5.64 per share for the year on revenue of $62.18 billion.

For its fourth quarter, WellPoint, in January, reported a sharp fall in profit, mainly impacted by net realized investment losses. A mere 0.7% rise in operating revenues due to poor segmental performances, together with lower medical enrollment and higher expenses also hurt results. Fourth-quarter net income fell 61.4% to $331.4 million from $859.1 million in the same period a year ago. On a per-share basis, earnings declined 57% to $0.65 from last year's $1.51. Total quarterly operating revenue edged up 0.7% to $15.43 billion from $15.33 billion in the prior-year quarter.

Meanwhile, Express Scripts reported in February a fourth-quarter profit increase, reflecting higher demand for generic drugs. Net income was $206.8 million or $0.83 per share, up from $138.5 million or $0.54 per share in the prior year quarter. Results for the quarter include $11.3 million for charges related to a security incident. Excluding non-recurring items, earnings were $0.69 per share for the year-ago quarter. Quarterly revenues declined to $5.51 billion from $5.55 billion in the same quarter last year. The company also reaffirmed its earnings outlook for fiscal 2009, which stood in the range of $3.63 to $3.73 per share. The Street currently expects earnings of $3.68 per share for 2009.

ESRX closed Thursday's regular trading session on NASDAQ at $49.17, down $0.01, or 0.02%, on a volume of 1.87 million shares.

Meanwhile, on the NYSE, WLP closed Thursday's trading session at $40.34, up $1.00, or 2.54%, with 3.87 million share volume.

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