Walgreen treks deeper into health care; analyst see Captaris playing for time; Bear Stearns shares drop 84%

By Paul A. Harris

St. Louis, March 17 - Walgreen Co. (NYSE: WAG) shares lost $0.22, 0.61%, on Monday to close at $35.74 as the drugstore company announced it will venture deeper into the field of providing health care services.

In a Monday press release, the Deerfield, Ill.-based company announced the launch of its new Walgreens Health and Wellness division, with the goal of providing health care services to employees near their homes and at work.

As part of the new division's strategy, Walgreens also announced plans to acquire two operators of worksite health centers, I-trax, Inc. (AMEX: DMX), parent company of CHD Meridian Healthcare, LLC, and privately held Whole Health Management.

The acquisitions will leave Walgreens with more than 500 worksite and retail health centers in 40 states, including its in-store Take Care Health Clinics.

Walgreens estimates the current potential market for worksite health centers and pharmacies includes more than 7,600 corporate campuses of 1,000 or more employees.

Walgreens will acquire I-trax in an approximately $278 million cash transaction, including the assumption of about $18.3 million in net debt. An affiliate of Walgreens will commence a $5.40 per share tender offer within 10 days.

Itrax (AMEX: DMX) shares gained 34.10% during Monday's session, closing at $5.23, up $1.33.

Terms of the Whole Health Management acquisition were not disclosed.

"These announcements mark an important strategic initiative for us," said Walgreens Chairman and CEO Jeffrey A. Rein. "Walgreens Health and Wellness division will marry our store clinics and pharmacies with worksite health centers and pharmacies. Our unique offering will allow large employers and health plans to provide care to employees and plan members at their worksites, and to dependents and retirees through our Take Care Health Clinics at local Walgreens drugstores.

"Over the last 15 years we've become more convenient for the customer with our 'Main and Main' drugstore locations. Today, we're redefining 'Main and Main' to include the worksite and bring us that much closer to customers.

"The story here is growth, and as these two companies increase their offerings, we can expand our complementary services more quickly and to a larger market. I-trax and Whole Health also will open the door for us to add worksite pharmacies where they already operate health centers. This is a natural extension of the existing worksite pharmacy services we currently provide for companies such as Sprint, ABX Air and Toyota."

An analyst who covers the health care sector saw a lot of upside and very little downside to the moves that Walgreens announced on Monday.

This source said that the strategy will further increase Walgreens brand awareness, and create sales synergies for the Walgreens stores.

"One thing Walgreens brought up on the call is that the health and wellness clinics could save a lot of time for everybody if a worker who feels sick could visit an onsite clinic," the analyst added.

"And if it turns out that Walgreens is completely wrong, this is not such a big acquisition that it will impact them materially.

"It has a pretty big upside without a lot of risk."

Captaris sees hostile bid from Vector

Elsewhere on Monday, Vector Capital made a $4.75 per share hostile bid for Bellevue, Wash., software company, Captaris, Inc., a 36.1% premium above Friday's closing price, according to a press release from Vector.

Shortly before Vector went public, Captaris announced its board has formed a special committee to evaluate strategic alternatives to further enhance shareholder value.

Bruce L. Crockett, chairman of the board, stated in the press release, "We have received unsolicited inquiries from multiple parties who have expressed an interest in a potential transaction with Captaris. We plan to conduct a fair, orderly and broad-based process. This process will commence immediately and we expect to conclude it as expeditiously as possible."

The company also announced that it has retained RBC Capital Markets as its financial advisor.

In a letter to the Captaris board, Vector insinuated that Captaris is dragging its feet.

"Hiring another capable investment bank, RBC Capital Markets, to replace Credit Suisse and conduct another strategic review comes across as a delaying tactic. Your decision also imposes significant additional costs on the shareholders. You will likely have to compensate both banks for their services - a highly unusual step when selling a company with a $100 million market value," wrote Vector's Amish Mehta.

Elsewhere in the letter Mehta wrote: "Despite our repeated requests, you have refused to share with us the timeline you intend to pursue. It is entirely unclear whether you intend to take weeks or many more months or whether you are even serious in your endeavor. Given your history of delays and broken promises, we are understandably wary of the depth of the Company's commitment to its sale."

Vector also asserted that since Sept. 12, 2007, when Vector entered into a non-disclosure and standstill agreement with the goal of exploring a transaction with Captaris, Captaris stock has lost 35.6% of its value, dropping from $5.42 on Sept. 12, 2007, to $3.49 on March 14, 2008.

"We have watched with dismay not only the reduction in the stock price of the company but also the deterioration in the company's intrinsic value. Poor decisions regarding the sale of the company have been compounded by poor decisions about acquisitions, use of cash, product priorities and sales strategy. Even a few more months on the current path risks additional permanent damage to Captaris' prospects and market value."

On the heels of Vector's bid, Captaris (Nasdaq: CAPA) rose 20.63% on Monday, up $0.72 to close at $4.21.

An analyst who covers the software space agreed with Vector that Captaris' announcement of a special committee and its hiring of RBC, amount to "playing for time.

"The company's timeline has always been much longer than public markets are willing to tolerate, and it continues to be that way," the analyst said.

The source said that as a defense for its lackluster share price Captaris has cited challenges in creating synchronicity among its acquisitions.

In October 2004 Captaris acquired Information Management Research, Inc. for $25.1 million. In July 2007 the company acquired Castelle for $8.5 million.

More recently in January 2008 Captaris acquired German-based Oce Document Technologies GmbH for $15.3 million.

"You don't expect acquisitions to disrupt your operations for that long," the analyst asserted.

"Their pace, in general, is slower than that of their peers.

"The company has been willing to wait to see if these moves played out, whereas the Street is obviously in no mood for that."

$2 per share for Bear

The stock market backdrop for Monday's situations was one of extreme volatility, according to sources from throughout the capital markets.

The Dow oscillated within a range of nearly 320 points, plummeting to a low of 11,756.60 shortly after the open, then late in the afternoon trading briefly above the 12,000 mark at 12,076.22 before closing at 11,972.25, 0.18% higher, up 21.16 on the day.

The other two major U.S. indexes, meanwhile, ended the session in negative territory.

The Nasdaq lost 1.6%, or 35.48 points, to close at 2,177.01.

The S&P 500 gave up 0.9%, or 11.54 points, to close at 1,276.60.

The news behind the volatility, sources said, was last week's phenomenal implosion of investment bank, Bear Stearns Cos. Inc., and Monday's news that JPMorgan Chase & Co., the partner with the New York Federal Reserve Bank in a bailout plan for Bear revealed last Friday, would acquire Bear Stearns for $2.00 per share.

The transaction, announced early Monday, will be a stock-for-stock exchange. JPMorgan Chase will exchange 0.05473 shares of JPMorgan Chase common stock per one share of Bear Stearns stock.

Effective immediately, JPMorgan is guaranteeing Bear Stearns' trading obligations.

In addition to the financing the Federal Reserve ordinarily provides through its discount window, the Fed will provide special financing in connection with this transaction. The Fed has agreed to fund up to $30 billion of Bear Stearns' less liquid assets.

Shares of Bear Stearns lost 83.97% on Monday, down $25.19 to close at $4.81. Their 52-week high, seen in April 2007, was $159.36 per share.

Meanwhile JPMorgan (NYSE: JPM) saw its share price increase by 10.29% to close Monday at $40.30, up $3.76.

Elsewhere in the financial space Lehman Brothers Holdings Inc. (NYSE: LEH) saw its shares lose 20.99% of their value, or $8.24 per share, to close at $31.02.

And shares of Goldman Sachs Group, Inc. (NYSE: GS) fell by 3.72%, ending $5.84 lower to close at $151.02.

Goldman and Lehman are both expected to report first quarter earnings on Tuesday.

Iomega: a superior proposal from EMC

Elsewhere on Monday Iomega Corp. announced that it had received a revised $3.75 per share unsolicited bid from EMC Corp. (NYSE: EMC).

The Iomega board has determined that the revised proposal from EMC would reasonably constitute a superior proposal as defined in the earlier purchase agreement that Iomega entered into with ExcelStor Great Wall Technology Ltd., Shenzhen ExcelStor Technology Ltd, Great Wall Technology Company Ltd., ExcelStor Group Ltd, and ExcelStor Holdings Ltd., on Dec. 12, 2007.

Iomega disclosed last Dec. 12 that it proposes to acquire all ExcelStor shares in stock-for-stock deal that will represent approximately 60% of the outstanding Iomega shares.

Iomega (NYSE: IOM) advanced 11.66% on Monday, to close at $3.64 per share, up $0.38.

Meanwhile shares of EMC (NYSE: EMC) closed 2.16% lower at $14.47, down $0.32 per share on the day.

MoneyGram amended agreement

Minneapolis-based MoneyGram International, Inc. (NYSE:MGI) announced on Monday that it has entered into an amended definitive agreement with an investment group led by Thomas H. Lee Partners, LP and Goldman Sachs.

The transaction, which was previously announced on March 10, is expected to close on March 25.

The investors will purchase $760 million of Series B and Series B-1 preferred stock, which will initially be convertible, at $2.50 per share, into approximately 79% of MoneyGram's common stock.

Goldman Sachs will provide $500 million in debt financing.

MoneyGram is expected to obtain an additional $250 million in senior debt financing prior to the close of the deal, and also expects to have $350 million available under its existing credit facility, pending the consent of its lenders.

The company also announced that MoneyGram and Wal-Mart Stores, Inc. have entered into an agreement reconfirming the previously announced amendment which extends the term of their money services agreement to 2013, effective upon the closing of the recapitalization transaction.

MoneyGram (NYSE: MGI) closed down 3% on Monday, at $1.94 per share, down $0.06.

Wal-Mart (NYSE: WMT) gained $0.13 per share (0.26%) to close at 49.95.

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