Big news this morning! CVS Corp. (CVS) and Caremark Rx Inc (CMX) are now discussing a "merger of equals." See CVS, Caremark Rx Hold Merger Talks.
But this news should not surprise faithful readers of this blog. Back on June 18, I explained the logic behind a PBM-Pharmacy Chain merger, arguing that control of the last mile in the pharmacy supply chain would lead to future chain pharmacy /PBM merger. Read my June analysis here: Walgreens' Future: I see dead canaries.
Although I was discussing Walgreens at the time, the same logic applies to a CVS-PBM combination. I wrote:
"The combined market cap of Medco, Caremark, and Express Scripts is roughly the same as Walgreens market cap. If PBM P/E ratios return to pre-2005 levels, they will be tempting targets for the retail chains."
Thanks to two unforseen events -- Wal-Mart and the AWP settlement-- valuations did drop, and look what happened!
See? This blog really can help you predict the future!