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Medco-ESRX Deal Irks Supervalu

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The leading grocery chain and heavyweight pharmacy retailer Supervalu Inc. is now an addition to the list of many pharmacy companies for whom the takeover of Medco Health Solutions by Express Scripts Inc. (ESRX - Free Report) did not go down well. Supervalu made its view public along with other retail giants urging the takeover would leave "only two significant competitors in a highly concentrated industry."

The National Association of Chain Drug Stores (of which Supervalu is a member), the National Community Pharmacists Association, and few retail pharmacy companies have filed a lawsuit at US District Court for the Western District of Pennsylvania appealing that the merger should be stopped.

Express Scripts wants to takeover Medco Health Solutions for $29.0 billion. The two pharmacy chains are big players in the field of Pharmacy Benefit.

Given the large purchasing power, the Pharmacy Benefit Managers (PBM) negotiate and reduce employers, government agencies and other clients’ spending on prescription drugs.

If the merger takes place, St. Louis-based Express Scripts and New Jersey-based Medco would create the largest U.S. PBM, controlling prescriptions of more than one in three Americans. Thus, the pharmacy groups are worried that the merger will hurt several retail pharmacy chains, specialty chains and huge employers who need pharmacy benefits.

We note, earlier this year that another retail bigwig Walgreen Company had refrained from renewing its license with Express Scripts.

Therefore, customers who were registered with Express Script had to refill their prescriptions at new pharmacies or pay for them out of their own pocket. 

Supervalu’s Shop n Save with 50 stores in Illinois and Missouri, and 34 pharmacies planned to hire more workers and enhance its pharmacy services to welcome patients with Express Scripts prescription plans.

It has urged the Express Script customers to transfer prescriptions well ahead of time, as then the pharmacist at the Shop n Save stores can arrange for the medicines in advance.

Supervalu holds a Zacks #3 Rank that implies a short term Hold Rating.

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