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April 13, 2009 12:59 PM

Skadden, White & Case, Cravath, Ropes All on $4.7 Billion Pharma Deal

Posted by Zach Lowe

In 2006 Express Scripts, the third-largest pharmacy benefits management business in the U.S., lost a major battle when rival CVS acquired the mammoth benefits manager Caremark Rx, despite a hostile bid from Express Scripts that slightly topped the CVS offer. 

That bid marked the first time that Skadden, Arps, Slate, Meagher & Flom represented Express Scripts on an M&A deal; the relationship has continued since then, says Lou Kling. Kling and Howard Ellin led the Skadden team advising Express on its $4.7 billion acquisition, announced Monday, of the insurer WellPoint's pharmacy management business.

Skadden landed its first assignment for Express Scripts, on the Caremark bid, on a referral, Kling says--an M&A partner with Express's regular outside firm was conflicted out of that matter and sent the work to Skadden. Express and Skadden have now "been through some wars together," but Kling speculates that Express would return to its old firm if Skadden were conflicted out of any potential deal. He won't name that firm.

Other Skadden partners on the WellPoint deal include Kenneth Wolff on M&A matters, antitrust partner Cliff Aronson, and banking partner Stephanie Teicher.

The deal, to be paid in cash and $1.4 billion in stock, provides Express Scripts with access to employers that use WellPoint's prescription drug management program. Last year WellPoint's unit filed or managed about 265 million prescriptions, while Express Scripts processed about 500 million, The Wall Street Journal says.

White & Case advised WellPoint on the transaction. Daniel Dufner, the lead partner on the deal, did not return calls seeking comment. Cravath, Swaine & Moore, led by partners Michael Goldman and William Whelan, advised the banks on financing issues, and Ropes & Gray advised Express Scripts on some of the particulars related to health care law. Michael Sexton, the lead Ropes partner on the deal, says the firm has advised Express on health care regulatory matters for about a decade; he declined to comment further.

Lawyers on the deal--which is expected to close in the second half of 2009, according to a joint statement--say it contains one rare nugget: a ten-year contract under which Express Scripts will provide benefits management services for WellPoint's clients. That essentially means that when WellPoint's general insurance business gains a new customer, Express will manage that customer's prescription drug plan, lawyers say. 

As  The New York Times and WSJ point out, there is some debate in the health insurance industry over whether insurers--who are bracing for tough times because of the economy and the Obama adminstration's plans to overhaul the health care system--should get out of the pharmacy management business.

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