SOURCE: Rothman Research

Rothman Research

June 21, 2010 08:26 ET

A Self-Destructive War

JOHANNESBURG, SOUTH AFRICA--(Marketwire - June 21, 2010) -  www.rothmanresearch.com - With the economic recovery continuing its snail-pace progression the drug stores industry is showing some mixed fundamentals. There are reasons to argue that the environment could be better for retail pharmacies and drug stores which stand to benefit from a number of factors an aging U.S. populace and the new healthcare law passed at the end of March which is set to open the door to opulence. However, according to the International council of Shopping Center Index for revenue at stores open at least a year was up by 2.6% in May 2010 for the retail sector as a whole. May for many retailers stood as an insipid month as indicated by revenues of some of the players in the drug retail space. Additionally, two of the titans in this space, CVS Caremark Corporation (NYSE: CVS) and Walgreen Co. (NYSE: WAG) which had every reason to embrace prosperity with the new law recently saw their share price plunge as rivalries between them turn into an all out war.

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The bitter contention between those two industry giants started when Walgreen, the largest retail pharmacy chain in terms of revenue, declared two weeks back that it would decline future agreements with CVS Caremark's PBM unit citing business practice incompatibilities for Walgreen as to how CVS is conducting business and pricing its drugs. Walgreen, nonetheless, was prepared to honor its part of the deal concerning ongoing contracts but made it clear that it would not renew further. CVS, the U.S. largest provider of prescription, responded assertively a few days back serving a 30 day notice to Walgreen informing the latter that its membership in CVS retail pharmacy network is going to be terminated. This dispute resulted in a loss-loss situation for both companies as they not only lost share-value in recent days but they both have given other industry rivals the opportunity to thrive on their weaknesses. Additionally, industry professionals believe that both companies have more to lose than to win in the short- to mid- term as sales would be impacted.

*Free downloadable research reports on CVS Caremark Corporation and Walgreen Co. are available by signing up now at http://www.rothmanresearch.com/article/cvs/23600/Jun-21-2010.html or http://www.rothmanresearch.com/article/wag/23601/Jun-21-2010.html

In a strategic move to kindle shareholders support, CVS Caremark announced early last week that its board of directors approved the initialization of a new $2 billion buyback of its outstanding shares.

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