(Updates with company comment on state inquiries in 11th paragraph.)
Oct. 6 (Bloomberg) -- Express Scripts Inc., the drug benefits manager seeking to buy rival Medco Health Solutions Inc., rose the most in two years in New York trading after the company cut its profit forecast less than investors expected.
Express Scripts increased $4.08, or 11 percent, to $40.02 at 4 p.m. New York time in Nasdaq Stock Market trading in the biggest jump since April 2009. The St. Louis-based company said in a statement that it expects adjusted earnings of $2.95 to $3.05 a share for 2011, less than its prior forecast of $3.15 to $3.25.
The company, which manages pharmacy benefits for employers and unions, blamed the cut on “stagnant economic conditions” as well as costs associated with its $29.1 billion bid for Franklin Lakes, New Jersey-based Medco. Shareholders had driven the stock down 37 percent since July 22, the day after the deal was announced, Bloomberg data show.
“There will be an acceleration in spending on projects to create additional capacity to successfully complete integration activities for the proposed merger with MHS,” David Larsen, an analyst at Leerink Swann in Boston, said in a note today. “We view this as an incremental positive, and an indication that Express Scripts continues to believe there is a good chance” the purchase will be approved by regulators.
Medco gained $3.31, or 7.3 percent, to $48.96 in New York Stock Exchange composite trading.
Investors had expected Express Scripts to reduce the forecast, Dave Shove, an analyst at Bank of Montreal in New York, said. In a Bloomberg survey, 23 analysts had estimated an average profit of $3.13 a share this year, below the company’s expectations.
“It’s possible that the actual lowering of guidance is not as bad as what people thought it might be,” Shove said in a telephone call.
The company put out a proxy filing that showed “low- to mid-teens” growth in earnings before interest, taxes and appreciation over the next three years, said Helene Wolk, an analyst at Sanford C. Bernstein & Co. in New York. The projection was “reassuring,” she said.
Express Scripts also said it won’t repurchase more shares until after it completes the Medco purchase. The acquisition requires clearance from the Federal Trade Commission.
The deal is being scrutinized by states concerned that the combined companies would have too much market power.
The state inquiries are “ordinary course for a merger of this nature,” Brian Henry, an Express Scripts spokesman, said today in an e-mail. He declined to specify which states have contacted the company.
“As is generally the case, they are working in conjunction with the FTC and we have spoken to some of them directly,” Henry said. “We will continue to work with the FTC and those states that have requested information.”
Susan Kinsman, a spokeswoman for the Connecticut attorney general’s office, said the state is “coordinating its antitrust investigation of the proposed merger with other state attorneys general and the FTC.”
--With assistance from Molly Peterson in Washington. Editors: Andrew Pollack, Angela Zimm
To contact the reporters on this story: Pat Wechsler in New York at email@example.com Alex Nussbaum in New York firstname.lastname@example.org.
To contact the editor responsible for this story: Reg Gale at Rgale5@bloomberg.net