So Medco has officially split off from Merck as of this week, and is trading separately on NYSE, ticker is MHS. The stock actually rose 10% its first day adding over $600m to Medco’s market cap and (after accounting for the value of Medco shares issued to shareholders) Merck rose too! This indicates partially that institutions like the future of the PBMS, all of which have rallied slightly along with Medco. It’s worth noting that Medco’s market cap is 80% greater than that of AdvancePCS.
Meanwhile Medco has been at pains to say that it will be totally separate from Merck, and the market may be taking this to mean that it will be able to get the best deal, rather than the best deal after Merck’s need have been considered. It may also be indicative that the market believes that Medicare reform will be good for PBMs. As I mentioned in an earlier post, that is likely but by no means certain.