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CVS Caremark to buy back up to $2B in stock

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CVS Caremark has initiated a new share repurchase program for up to $2 billion of its outstanding common stock.

The announcement of the stock buyback plan comes a week after the beginning of a very public spat with rival pharmacy operator Walgreens over its exit from the Caremark PBM retail network.

WOONSOCKET, R.I. — CVS Caremark Corp. has initiated a new share repurchase program for up to $2 billion of its outstanding common stock.

The drug store chain and pharmacy benefit manager said Monday that the share repurchase authorization expires at the end of 2011. Under the program, the company can buy back shares through open market repurchases, privately negotiated transactions, accelerated share repurchase transactions and other derivative transactions.

"We’re very pleased with the board’s approval of this new share repurchase program and believe it reflects well-placed confidence in the future growth of CVS Caremark’s business and an ongoing commitment to increase shareholder value," CVS Caremark executive vice president and chief financial officer Dave Denton said in a statement. "We’re very focused on the efficient allocation of capital, and we will continue to invest in internal projects that meet our return hurdles and use the rest of our remaining free cash flow to increase shareholder value."

CVS Caremark reported that during during the 2010 second quarter it repurchased about 16.7 million shares of common stock for roughly $613 million, completing the $2 billion repurchase program that the company launched in November 2009.

"Over the next five years, we expect to generate significantly more free cash flow than what we’ve generated in the past five years," Denton stated, "and we expect to use the majority of that free cash flow in the near term to enhance shareholder returns through dividends and share repurchases. We intend to continue to review our dividend annually and do share repurchases that are value-enhancing."

The announcement of the stock buyback program comes amid a public spat between rival pharmacy operators CVS Caremark and Walgreen Co.

A week ago, Walgreens said it would no longer participate in the Caremark retail pharmacy network. The Deerfield, Ill.-based drug chain is the PBM network’s largest pharmacy provider. CVS Caremark stated that it was "surprised and disappointed" by Walgreens’ action and two days later announced plans to kick Walgreens out of the Caremark retail network in 30 days.

Financial analysts say both pharmacy companies face risks with the standoff. Walgreens could lose a big chunk of business by no longer filling prescriptions for Caremark drug plan members, while CVS Caremark’s PBM business could experience a disruption as it pushes ahead with client contract sales, according to analysts.

"This could all be part of the public negotiating process that Walgreens has chosen to engage in, with CVS Caremark showing that it is refusing to back down," J.P. Morgan analyst Lisa Gill wrote in a research note on the dispute. "As such, we won’t entirely rule out an ultimate resolution to this process. We will continue to monitor the situation, especially how [CVS Caremark] clients are reacting to the latest development and how it could potentially impact the 2011 selling season and renewals."

Both pharmacy companies saw their share prices dip on June 7, the day Walgreens announced its move. However, CVS Caremark shares closed out the day up and finished out the week above their June 7 opening price. Walgreens shares, meanwhile, finished down slightly on June 7 and had slipped further at the end of last week.

As of noon trading on Monday, CVS Caremark shares were up 32 cents to $32.40, while shares of Walgreens rose 34 cents to $29.82.


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