 1 Creating the Premier Pharmacy Services Provider January 2007 Filed by Caremark Rx, Inc. Pursuant to Rule 425 under the Securities Act of 1933 and Deemed Filed pursuant to Rule 14a-12 of the Securities Exchange Act of 1934 Subject Company: Caremark Rx, Inc. Commission File No.: 001-14200 |
 2 CVS/Caremark Merger Overview To be listed on NYSE under “CVS” Symbol: CVS/Caremark Corporation Name: February 2007 Expected Closing: Corporate: Woonsocket, RI / PBM: Nashville, TN Headquarters: 50/50 split Board Composition: Mac Crawford – Chairman Tom Ryan – President and CEO Dave Rickard – CFO Howard McLure – President Caremark Pharmacy Services Management Team: |
 3 CVS/Caremark Merger Capitalizes on Evolving Industry Trends Purchasing advantage, operating efficiencies and improved access to pharmacist with full view of patient records will lower costs Cost Containment In-store enrollment and consultation; Medication Therapy Management Medicare Part D More transparency at point of sale - consumer able to make totally informed decisions Cost Shift to Consumer Retail locations; In-store enrollment and consultation Specialty Products Higher substitution rates at point of sale lowers cost and drives high margin generics Robust Generic Pipeline Consultation by pharmacist or clinician with participant = favorable healthcare outcomes Focus on Wellness Gives consumers timely, actionable, personalized information to improve healthcare outcomes Growing Consumerism CVS/Caremark Merger Benefit Market Trends |
 4 CVS/Caremark Merger is in Best Interest of Shareholders, Customers and Consumers Significant strategic benefits Financial benefits are substantial and concrete Anti-trust clearance; February 2007 close Realize benefits in 2007 selling season Strong investment grade credit; 150M share repurchase (~10%) Proven management teams CVS/Caremark Merger Enhances Shareholder Value |
 5 CVS/Caremark Merger Enhances Shareholder Value Uniquely positioned to capitalize on evolving trends Superior upside in creation of new services and products Better control over costs for payors Improves choice and accessibility, and promotes better health outcomes for consumers Compelling Strategic Benefits |
 6 CVS/Caremark Merger Enhances Shareholder Value Double-digit cents-per-share accretion and higher ROE in 2008 $500 million in conservatively estimated cost synergies Incremental revenue opportunities of $800M to $1B in 2008 with significant growth thereafter Special $2.00 cash dividend per share to CMX shareholders (upon or promptly after closing) Commitment to a post-merger 150 million share retirement Substantial Financial Benefits Uniquely positioned to capitalize on evolving trends Superior upside in creation of new services and products Better control over costs for payors Improves choice and accessibility, and promotes better health outcomes for
consumers Compelling Strategic Benefits |
 7 CVS/Caremark Merger Enhances Shareholder Value Received FTC clearance Expect to close February 2007 Clear Path to Close Double-digit cents-per-share accretion and higher ROE in 2008 $500 million in conservatively estimated cost synergies Incremental revenue opportunities from $800M to $1B in 2008 with significant growth thereafter Special $2.00 cash dividend per share to CMX shareholders (upon or promptly after
closing) Commitment to post-merger 150 million share retirement Substantial Financial Benefits Uniquely positioned to capitalize on evolving trends Superior upside in creation of new services and products Better control over costs for payors Improves choice and accessibility, and promotes better health outcomes for
consumers Compelling Strategic Benefits |
 8 CVS/Caremark Merger Enhances Shareholder Value Clients overwhelmingly positive New products/services should lead to greater retention/contract wins Benefits realized in 2007 selling season Enhanced Business Opportunity Received FTC clearance Expect to close February 2007 Clear Path to Close Double-digit cents-per-share accretion and higher ROE in 2008 $500 million in conservatively estimated cost synergies Incremental revenue opportunities from $800M to $1B in 2008 with significant growth thereafter Special $2.00 cash dividend per share to CMX shareholders (upon or promptly after
closing) Commitment to a post-merger 150 million share retirement
Substantial Financial Benefits Uniquely positioned to capitalize on evolving trends Superior upside in creation of new services and products Better control over costs for payors Improves choice and accessibility, and promotes better health outcomes for
consumers Compelling Strategic Benefits |
 9 CVS/Caremark Merger Enhances Shareholder Value Strong investment grade credit rating Substantial FCF from retail and PBM enables strategic investments, dividends and share repurchases Financial Flexibility Clients overwhelmingly positive New products/services should lead to greater retention/contract wins Benefits realized in 2007 selling season Enhanced Business Opportunity Received FTC clearance Expect to close February 2007 Clear Path to Close Double-digit cents-per-share accretion and higher ROE in 2008 $500 million in conservatively estimated cost synergies Incremental revenue opportunities from $800M to $1B in 2008 with significant growth thereafter Special $2.00 cash dividend per share to CMX shareholders (upon or promptly after
closing) Commitment to a post-merger 150 million share retirement
Substantial Financial Benefits Uniquely positioned to capitalize on evolving trends Superior upside in creation of new services and products Better control over costs for payors Improves choice and accessibility, and promotes better health outcomes for
consumers Compelling Strategic Benefits |
 10 CVS/Caremark Merger Enhances Shareholder Value Strong investment grade credit rating Substantial FCF from retail and PBM enables strategic investments, dividends and share
repurchases Financial Flexibility Proven track-records with large-scale acquisition integration History of exceeding stated synergies Management Teams Clients overwhelmingly positive New products/ services should lead to greater retention/contract wins Benefits realized in 2007 selling season Enhanced Business Opportunity Received FTC clearance Expect to close February 2007 Clear Path to Close Double-digit cents-per-share accretion and higher ROE in 2008 $500 million in conservatively estimated cost synergies Incremental revenue opportunities from $800M to $1B in 2008 with significant growth thereafter Special $2.00 cash dividend per share to CMX shareholders (upon or promptly after
closing) Commitment to a post-merger 150 million share retirement
Substantial Financial Benefits Uniquely positioned to capitalize on evolving trends Superior upside in creation of new services and products Better control over costs for payors Improves choice and accessibility, and promotes better health outcomes for
consumers Compelling Strategic Benefits |
 11 Near-Term Sources of Revenue That Only a CVS/Caremark Combination Can Derive Examples include: In-store pickup for mail customers and targeted retail-to-mail conversion
Front-store offers for PBM members in-store, online and via
mail Improved generic substitution and compliance to formularies and drug
therapies Enhanced offering for PBM specialty members through access to select CVS retail pharmacies, 52 PharmaCare specialty pharmacy stores and MinuteClinics Improved disease management programs through face-to-face treatment Integrated retail / mail / specialty / MinuteClinic services for PBM customers Ability to leverage CVS marketing capabilities for products targeted to consumers Incremental revenue opportunities from $800M to $1B in 2008; significant growth thereafter |
 12 Superior Financial Profile Note – Based on the simple addition of reported results for the last twelve months ended
September 30, 2006 with an adjustment of $4.4 billion for intercompany
revenues. Note – Pre-impact of share repurchase $ 1,899 Free Cash Flow 1.5x Debt / EBITDA $ 2,420 Net Income 5.9% % Margin $ 4,306 EBITDA $ 72,896 Revenue Pro forma LTM Strong investment grade credit rating |
 13 A Clearly Superior Offer • Significant strategic benefits • Substantial financial benefits • Clients supportive • February 2007 close • Strong management team • Successful large-scale integrations • Highly conditional offer • No strategic advantage • Financial benefits suspect • Client attrition • Uncertain timing, IF EVER • CMX would be 20x the largest integration ESRX has ever done |
 14 Dispelling the Myths Comparisons to former vertical mergers not applicable Integration of leading pharmacy retailer with leading PBM addresses evolving marketplace needs “Vertical PBM transactions have failed to create stockholder value” Vertical Mergers Destroy Value “3 into 2” mergers face significant antitrust obstacles and delays Heavy large employer concentration may trigger concern ESRX is confident that the “regulatory requirements will be met in a timely manner” Regulatory Approval CMX to offer clients network of 60,000 pharmacies Value and choice will drive business PharmaCare doesn’t favor CVS stores now CVS/CMX would be “biased to its own stores” Channel Choice $1B in net new revenues have moved from ESRX to CMX in past 3 years “In past 3 years, twice as many CMX clients have moved to ESRX than vice versa” Contract Wins/Losses Financing contemplates JUNK CREDIT Leverage: ~5x Debt-to-2006 EBITDA Limited, if any, ability to do share repurchases / pay dividends ESRX would have “significant financial flexibility” Financial Flexibility Well understood that retail and PBM incentives are aligned with patients and payors Integrated offering delivers more value to clients We “make money when patients and clients spend money” Incentive Alignment REALITY MYTH |
 15 CVS/CMX Provides Immediate, Superior Value….. Q307 at earliest, IF EVER February 2007 Expected Closing 2008, perhaps 2009 2007 Selling Season Financing Due diligence ESRX shareholder vote CMX board/shareholder approval FTC/SEC approval Absence of adverse change affecting CMX value to ESRX CVS shareholder vote CMX shareholder vote Conditions to Close None Double–digit cents-per-share Anticipated 2008 Accretion None, likely negative $800M to $1B in ‘08; higher thereafter Incremental Revenue Opportunities $500M (unsubstantiated) $500M+ Targeted Annual Cost Synergies 57.0% 45.5% Pro Forma CMX Ownership 0.426 shares of ESRX for each share of CMX $29.25 in cash per share 1.67 shares of CVS for each CMX of CMX $2.00 per share in special cash dividend to CMX shareholders (upon or promptly after closing) Offer ESRX |
 16 …with Certainty to Close vs. ESRX’s Highly Conditional Offer Required, with $675M breakup fee Not applicable Termination of Existing CVS/CMX Merger- of-Equal Agreement High likelihood of delay and real risk of NEVER being approved CMX: February 20 CVS: February 23 Shareholder Approval Offer conditioned on financing; financing conditioned on due diligence Financing contemplates junk credit Not a condition Financing Required – CMX board previously found ESRX offer not superior / unlikely to lead to superior offer Approved CMX Board of Director Approval None, is a condition for both ESRX and its lenders Not a condition Due Diligence Antitrust clearance will involve substantial delay / may well prevent closing Approval received without second request Regulatory Uncertain, IF EVER February 2007 Timing ESRX Hostile CVS/CMX Merger |
 17 CVS/Caremark: The Right Combination Significant strategic benefits Financial benefits are substantial and concrete Anti-trust clearance; February 2007 close Realize benefits in 2007 selling season Strong investment grade credit; 150M share repurchase (~10%) Proven management teams |
 18 Cautionary Statement Regarding Forward-Looking Statements This document contains certain forward-looking statements about Caremark and
CVS. When used in this document, the words “anticipates”,
“may”, “can”, “believes”, “expects”, “projects”, “intends”, “likely”, “will”, “to be” and any similar expressions and any other statements that are not historical
facts, in each case as they relate to Caremark, CVS or the combined company or the
transaction, are intended to identify those assertions as
forward-looking statements. Such statements include, but are not limited to, statements about the benefits of the merger, information about the combined company, including expected synergies and projected revenues and cash flows, combined operating and financial data, including future financial and operating results, the combined
company’s objectives, plans and expectations, the likelihood of
satisfaction of certain closing conditions and whether and when the merger
will be consummated. These statements are based upon the current beliefs and expectations of management of Caremark and CVS and are subject to a number
of factors that could cause actual outcomes and results to be materially
different from those projected or anticipated. These
forward-looking statements are subject to numerous risks and uncertainties. The following factors, among other things, could cause actual results to differ from the
forward-looking statements in this document: (1) the companies may be
unable to obtain stockholder or regulatory approvals in a timely manner, if
at all; (2) the businesses of Caremark and CVS may not be integrated
successfully or as quickly as expected; (3) cost savings and any other synergies or cash flows from the merger may not be fully realized or may take longer to realize than
expected; (4) the transaction may involve unexpected costs; (5) the businesses and results of operations of Caremark and CVS may suffer as a result of uncertainty surrounding the transaction; and (6) the
industry may be subject to future regulatory or legislative action.
Other unknown or unpredictable factors also could have material adverse
effects on future results, performance or achievements of the two companies. In light of these risks, uncertainties, assumptions and factors, the
forward-looking events discussed in this document may not occur. You are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date stated, or if no date is stated, as of the date of this press release. Risk factors affecting the businesses of each of
Caremark and CVS are set forth in, and may be accessed through, each
company’s filings with the SEC. These and other factors relating
to the merger are available in the joint proxy statement/prospectus filed with the SEC. |
 19 Important Information for Investors and Stockholders Caremark and CVS filed a joint proxy statement/prospectus with the SEC in connection
with the proposed merger. Caremark and CVS urge investors and
stockholders to read the joint proxy statement/prospectus and any other
relevant documents filed by either party with the SEC because they contain
important information. Investors and stockholders are currently able to
obtain the joint proxy statement/prospectus and other documents filed with
the SEC free of charge at the website maintained by the SEC at www.sec.gov. In addition, documents filed with the SEC by Caremark will be available free of charge
on the investor relations portion of the Caremark website at
www.caremark.com. Documents filed with the SEC by CVS will be
available free of charge on the investor relations portion of the CVS website at http://investor.cvs.com. Investors and stockholders may obtain a detailed list of
names, affiliations and interests of participants in the solicitation of
proxies of Caremark stockholders to approve the merger at the following
address: Innisfree M&A Incorporated, 501 Madison Avenue, 20th Floor, New
York, New York 10022. Caremark, and certain of its directors and executive officers may be deemed to be
participants in the solicitation of proxies from its stockholders in connection with the merger. A description of the interests of Caremark’s directors and executive officers in Caremark is set forth
in the proxy statement for Caremark’s 2006 annual meeting of
stockholders, which was filed with the SEC on April 7, 2006. CVS, and
certain of its directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of CVS in connection with the
merger. A description of the interests of CVS’s directors and executive officers in CVS is set forth in the proxy statement for
CVS’s 2006 annual meeting of stockholders, which was filed with the SEC on March 24,
2006. If and to the extent that any of the Caremark or CVS
participants will receive any additional benefits in connection with the
merger that are unknown as of the date of this filing, the details of those benefits are described in the definitive joint proxy statement/prospectus relating to the merger. Investors and stockholders can obtain more detailed information regarding the direct and indirect
interests of Caremark’s and CVS’s directors and executive officers in the merger by reading the definitive joint
proxy statement/prospectus. |
 20 Creating the Premier Pharmacy Services Provider January 2007 |