updated 3/16/2007 1:42:57 PM ET 2007-03-16T17:42:57

Caremark Rx Inc. shareholders approved a $26.5 billion acquisition by drugstore operator CVS Corp., the pharmacy benefits manager announced Friday.

Caremark’s rival Express Scripts Inc. and CVS have been battling for months to acquire Caremark.

But increased antitrust scrutiny of Express Scripts’ proposed deal and its decision earlier this week not to increase its offer turned the bidding war in CVS’ favor, some analysts said.

Caremark announced after a 15-minute shareholder meeting in Nashville that more than 50 percent of the shares voted were cast in favor of the deal.

Company officials said they will not have a breakdown on the votes for and against until the tally is certified by an independent accounting firm sometime next week. But they said a “substantial majority” of outstanding shares voted for the deal.

There were no stockholder comments at the meeting, which was held in the city where the company is based. About 200 people attended, including several analysts, officials from Caremark and officials from Express Scripts.

The deal, which Caremark and CVS have described as a “merger of equals,” would create a $75 billion drug distribution powerhouse that could compete more effectively for customers and drive a harder bargain with drugmakers.

“The shareholders spoke. We’re gratified they realized the value of this combination as we go forward,” said Mac Crawford, chairman, chief executive and president of Caremark. “I think we have got a very good outcome for our shareholders.”

With approval from shareholders, Caremark officials say they now expect to close on the deal by next week.

CVS shareholders had approved the stock and cash buyout Thursday. Express Scripts’ bid was slightly higher, valued at about $27.2 billion based on Thursday’s closing stock price, but hasn’t been approved by the Federal Trade Commission.

The CVS bid has already been approved by the FTC.

Caremark executives had favored the CVS deal all along, and cited concerns about FTC approval in rejecting the Express Scripts’ offer.

The Caremark shareholder vote had been delayed twice because of a lawsuit by a pension fund shareholder that claimed Caremark executives struck a bargain that favored company insiders over regular shareholders.

Although the petition failed to stop the CVS deal, it revealed documents showing that Crawford negotiated jobs for himself, his son and other executives, won protection for the Caremark board from an ongoing investigation into backdating of stock options and guaranteed at least some Caremark directors would serve on the new company’s board.

Woonsocket, R.I.-based CVS boosted its offer for Caremark three times, while Express Scripts sweetened its offer once.

The bidding began in November, when CVS offered $21.2 billion in stock for Caremark. Express Scripts issued a hostile bid of $26 billion in cash and stock a month later.

To compete, CVS added a special cash dividend that has climbed to $7.50 a share, payable to Caremark shareholders after the buyout closes.

Maryland Heights, Mo.-based Express Scripts then improved its offer of 0.426 shares of its own stock and $29.25 in cash per share by 0.481 cents a day starting April 1 until the deal is closed.

Andrew Speller, an analyst with A.G. Edwards & Sons Inc., said before the vote that increased antitrust scrutiny of Express Scripts’ proposed acquisition and its decision earlier this week not to increase its bid could mean victory for CVS.

“In the end, it’s all about the price they’re getting,” he said Thursday. “Certainly without the special dividend, this thing would not have come close to passing. But given the cash component here, it has a chance.”

The CVS deal got another boost earlier this week when investment advisory firm Institutional Shareholder Services reversed an earlier recommendation that Caremark shareholders vote against it.

ISS said it changed its mind because of the cash dividend CVS added to its offer of 1.67 of its own shares for each Caremark share.

Investment advisory firms Glass, Lewis & Co. and CtW Investment Group recommended that Caremark shareholders oppose the CVS bid. They contended Caremark’s board didn’t negotiate the best deal for its shareholders.

“We’re going to continue to encourage shareholders to hold Caremark officials accountable when they join CVS,” Brishen Rogers, an attorney for CtW Investment Group, said after the vote. “The merger is accomplished at this point, but we need to protect value of those companies.”

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