 1 The CVS/Caremark Merger is in the Best Interest of Shareholders February 2, 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 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 anticipated accretion, return on equity, cost synergies, incremental revenues, new products and offerings, 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. The actual results or performance by CVS or Caremark, or the combined company, and
issues relating to the transaction, could differ materially from those expressed in, or implied by, any forward-looking statements relating to those matters. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have
on the results of operations or financial condition of CVS or Caremark, the
combined company or the transaction. This presentation may include certain
non-GAAP financial measures as defined under SEC rules. A reconciliation to the most directly comparable GAAP measures can be found in the footnotes to the tables
attached to Caremark’s latest quarterly earnings press release and
certain supplemental information is provided on caremarkrx.com (applicable slides are footnoted). |
 3 Important Information CVS has filed with the SEC a registration statement on Form S-4 that was declared
effective by the SEC on January 19, 2007. This registration statement
includes a joint proxy statement/prospectus 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. |
 4 Caremark Profile Leading pharmaceutical services company providing comprehensive drug benefit services to health plan sponsors and their participants Uniquely Integrated Services – PBM, Specialty, Disease Management Clients – Corporate health plans – Managed care organizations and insurance companies – Unions – Government agencies National Prescription Drug Plan under Medicare Part D YTD September 2006 Statistics – Revenues $27.5 Billion – Adjusted prescriptions 477 million 28% of Rxs dispensed by mail 55% of Rxs dispensed were generics |
    Headquarters Medical Call Center Operating Center Mail Service Pharmacy Call Center CareCenter Pharmacy Specialty Pharmacy IT Center Regional Order Creation Center Sales Office Clinical Office Pharmaceutical Repackaging Facility Caremark Profile Caremark retail network includes 60,000 pharmacies nationwide Caremark operations – 7 mail pharmacies – 21 specialty pharmacies – 9 customer call centers – 12 client-site pharmacies – Industry’s only FDA regulated repackaging plant 13,000 employees, including 1,300 pharmacists |
 6 CVS Profile Nation’s largest retail pharmacy with more than 6,200 retail and specialty stores in 43 states Services – CVS/pharmacy stores – CVS.com – MinuteClinic – PharmaCare (PBM, Mail, Specialty services) 170,000 employees, including 20,000 pharmacists 2006 revenue $43.8 billion 2006 prescriptions filled 495 million |
 7 PharmaCare Specialty Pharmacy Stores CVS Profile #1 or #2 market share in 75% of the top 100 markets in which CVS operates States with CVS/pharmacy Retail Stores 16% Share of U.S. Retail Scripts |
 8 CVS/Caremark Merger Overview February 2007 Expected Closing Corporate: Woonsocket, RI PBM: Nashville, TN Headquarters 50/50 Split Board Composition Chairman: Mac Crawford President & CEO: Tom Ryan CFO: Dave Rickard President PBM: Howard McLure Management Team CVS (NYSE) Symbol CVS/Caremark Corporation Name |
 9 CVS/Caremark Governance Structure Upon Close Provides for annual election of all directors Will have majority voting provision Separate CEO and Chairman Has stock ownership guidelines for D&O Allows stockholders to ratify auditors |
 10 Caremark Board Considered Consumer Strategy Superior to PBM Combination (Aug 2006) Financial Significance Strategic Significance Low Low High High Consumer Strategy National Retail Chain PBM |
 11 CVS/Caremark Merger Capitalizes on Evolving Industry Trends 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 consultation and disease management enrollment Increasing Use of Biotech Products May drive higher substitution rates at point of sale Robust Generic Pipeline Consultation by pharmacist or clinician with participant yields favorable outcomes Focus on Wellness Gives consumers timely, actionable, personalized information to improve health outcomes Growing Consumerism CVS/Caremark Merger Benefit Market Trends Payors demanding more effective cost management, more participant participation,
outcomes Consumers need access to information and choice
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 12 CVS/Caremark Merger Enhances Shareholder Value Uniquely positioned to capitalize on trends and better serve customers Will enable creation of differentiated services More effective cost management for payors More access to information and choice for consumers Strategic Benefits Received necessary regulatory approvals from FTC and SEC Shareholder votes are last step (CMX Feb 20, CVS Feb 23) Certainty of Completion 1.67 shares CVS/Caremark stock for each share of CMX $2.00 special dividend to CMX shareholders of record Accretive repurchase of 150 million CVS/Caremark shares $500 M in cost synergies, integration planning underway $800 M to $1 B in revenue synergies Financial Benefits |
 13 CVS/Caremark Merger Enhances Shareholder Value Substantial FCF will enable flexibility for investments in existing business, strategic opportunities, dividends and share repurchases Solid investment grade credit rating Financial Flexibility Proven track-records with large scale acquisition integration History of exceeding stated synergies Visionary leadership Management Teams Clients overwhelmingly positive Differentiated services will be compelling to payors Unmatched in-store services will increase consumer loyalty February close creates opportunity for 2007 selling season Business Opportunity |
 14 Near-Term Revenue Opportunities Unique to CVS/Caremark Combination Incremental opportunities of $800 M to $1 B in 2008 – Half from PBM, half from retail Revenue estimates based on market research and PharmaCare-CVS experience Revenue synergy examples: – Improved access/services for PBM specialty participants – Retail to mail conversion (including in-store pick up) – Front store offers for PBM participants (also on-line and mail) – Improved generic substitution & benefit design compliance – Integrated offering leading to higher PBM sales – Ability to market PBM consumer products in CVS stores – Disease management programs with face-to-face interaction
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 15 Caremark Board of Directors Concluded that Express Proposal Not in Best Interests of Shareholders No experience with large-scale merger integration Recent integration track-record questionable Management Team Limited capital for investment in existing business, strategic opportunities, dividends and share repurchases ESRX recently placed on negative watch by rating agencies Financial Position Clients overwhelmingly negative Risk of substantial client attrition Business Risk Delay would damage 2007 and perhaps 2008 selling season Enforcement agencies could impose adverse conditions Antitrust Risk Review of recent filings show offer is highly conditional Lost business & negative synergies could result in loss of value Synergy calculation questionable Financial Risk Does not create competitive advantages Defensive reaction out of concern about enhanced competition Constructed to disrupt CVS merger Strategic Rationale |
 16 Express Scripts Proposal Includes Material Conditions A due diligence review Satisfaction of financing conditions Anti-trust and other regulatory approvals Approval by their own shareholders – a process they have not even begun and, which by their own admission, would prevent their illusory February 13 deadline from even occurring No decline in the Dow Jones Industrial Average, the Standard & Poor’s Index or the NASDAQ--100 Index by an amount in excess of 15% No material change in the market price of Caremark Common Stock Satisfaction of certain Delaware anti-takeover requirements that cannot readily be satisfied absent Caremark’s prior Board approval |
 17 Value of Transactions for Caremark Shareholders * VALUES DO NOT REFLECT CONDITIONALITY AND BUSINESS RISK FACTORS ASSOCIATED WITH ESRX PROPOSAL Value of Value of Calculated as of 1/31/2007 CVS Merger ESRX Proposal Counterparty Stock Price 33.65 $ 69.52 $ * Exchange Ratio 1.67 0.426 Implied Value of Stock Consideration 56.20 $ 29.62 $ * Value of Dividend/Cash Consideration 2.00 $ 29.25 $ * Implied Value of Transaction 58.20 $ 58.87 $ PV of Dividend/Cash Consideration 1.98 $ 27.39 $ Present Value of Offer 58.18 $ 57.00 $ * Annual Discount Rate 10% 10% Closing Date Assumption 2/28/2007 9/28/2007 Estimated Days to Close 28 240 |
 18 Dispelling Myths Not appropriate comparisons-natural conflicts with former Pharma owners, Rite Aid had serious accounting issues CVS/CMX 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/delays Heavy large employer concentration may trigger concern Pre and post merger indemnity for D&O does not change Merger agreement contains standard indemnification language that is consistent with Delaware law ESRX confident “regulatory requirements will be met in timely manner” “BOD selling CMX to avoid ramifications of stock option backdating” Regulatory Approval Options Backdating CMX will offer network of 60,000 pharmacies Value and choice will drive business PharmaCare offers network of 60,000 pharmacies CVS/CMX would be “biased to its own stores” Channel Choice CMX won $1B net new revenues from ESRX 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 for share repos / dividends Terms of commitment letters 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 CVS “makes money when patients and clients spend money” Incentive Alignment REALITY MYTH |
 19 CVS/Caremark Merger is in the Best Interests of Shareholders • Immediate and concrete financial benefits • February 2007 close • Significant strategic benefits • Clients supportive • Proven management teams • Highly conditional offer • Financial benefits suspect • Uncertain timing • Lacks strategic rationale • Client attrition • CMX would be 20x the largest integration ESRX has ever done |
 20 The CVS/Caremark Merger is in the Best Interest of Shareholders February 2, 2007 |