updated 2/23/2005 8:18:00 AM ET 2005-02-23T13:18:00

Medco Health Solutions Inc., one of the nation’s biggest pharmacy benefits managers, said Wednesday it has agreed to buy Accredo Health Inc., a distributor of specialty drugs and services, for about $2.2 billion in cash and stock.

Combined with its own operations, Medco said the deal would create the nation’s largest specialty pharmacy business, generating more than $4 billion in annual net revenue.

Medco, based in Franklin Lakes, N.J., had launched its own specialty pharmacy operations two years ago, and struck a 10-year alliance Memphis, Tenn.-based Accredo early in 2004 to create a platform for all specialty drugs.

Accredo distributes drugs to treat hemophilia, immunodeficiency disorders, multiple sclerosis and other diseases through 36 branch locations or ships them from four centralized dispensing facilities to patient’s homes, doctors’ offices and hospitals.

Medco said it intends to manage Accredo as an independent business. Accredo Chairman and CEO David D. Stevens will serve as CEO for the combined specialty business, which will report to Kenny Klepper, Medco’s executive vice president and chief operating officer.

Medco said the combined company should generate more than $40 million in cost savings or extra revenue in 2006.

Under terms of the agreement, each Accredo share would be exchanged for $22.00 in cash and 0.49107 shares of Medco common stock, subject to possible adjustment based on the value of Medco’s common stock before the deal closes.

At Tuesday’s closing Medco price, that combination would value each Accredo share at $43.33, a 43 percent premium over Accredo’s closing price Tuesday of $30.24 on the Nasdaq Stock Market.

The transaction has been unanimously approved by the boards of both companies, but is subject to approval by Accredo shareholders. The companies expect to close deal in mid-2005.

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