1. A pharmacy giant in the making

2. Merger Terms Sheet
New company: CVS/Caremark Corporation and be headquartered in Woonsocket, Rhode Island
Structure: Stock-for-stock merger of equals
CVS to issue 1.67 shares for each Caremark share
54.5% CVS / 45.5% Caremark pro forma ownership
Board of Directors:
Mac Crawford will become Chairman
Tom Ryan will become President and Chief Executive Officer
Caremark Senior Executive Vice President and Chief Operating Officer Howard McLure will become President of Caremark pharmacy services business
Expected Closing: 6 – 12 months

3. Merger - Advisors Caremark’s advisors on the transaction were:
Financial Advisors:
J.P. Morgan Securities, Inc.
UBS Securities LLC
Lawyers :
King & Spalding LLP for general legal matters
Jones Day LLP on regulatory matters
CVS’s advisors on the transaction were:
Evercore 4 Group, LLC
Lehman Brothers Inc.
Davis Polk & Wardwell for general legal matters
Mintz Levin Cohn Ferris Glovsky and Popeo P.C. on regulatory matters

4. Merger – Strategic Rationale
Creates the premier integrated pharmacy services provider
The combined company is expected to able to offer end-to-end services like plan design, prescription fulfilment, etc.
Opportunity to improve clinical outcomes, resulting in better control over healthcare costs for employers and plan providers
Expected to improve the delivery of pharmacy services and healthcare decision
Combines one of the nation’s leading pharmaceutical services companies with the largest pharmacy chain
Combined company will be:
1 in pharmacy sales
1 in PBM lives managed
2 in mail services pharmacy sales
1 in specialty pharmacy sales
1 in retail-based clinics

5. Merger – Strategic Rationale – Contd.
We believe this combination is the logical evolution of the pharmacy services industry, and enables CVS/Caremark to better address emerging trends and challenges in healthcare
The combination expects to help manage the costs and complexities of the U.S. healthcare system, driving superior healthcare outcomes and enhancing value for employers, health plans, and consumers
Over time, the combination will create a platform to drive growth and offer new and innovative personalized services to consumers and employers

6. Industry Overview Structure Trends Market value US $250 billion
Segmented industry – Many players
Trends
Average Growth rate of 4% to 5%
US spends more as a % of GDP than any other country
US spends 16% of GDP on health care – expected to reach 17.5% by 2007
Consolidation among different players both vertical and horizontal

7. Market Share – CVS Corp.

8. Geographical Presence – CVS

9. Why Caremark? Caremark – second largest PBM
21 licensed specialty pharmacies for delivery of advanced medications
Caremark has pharmacies attached to it.
Caremark’s wider coverage of clients
Cost synergies and improved cash collections

10. Why Caremark? – Contd.
Merger of Equals CVS - $37 billion revenue and Caremark – $35.9 billion in 2005
Hybrid – deliver drugs by mail and corner drugstore
Bigger the better – Price negotiating power and prevention of foot traffic to mail order medicines- savings to consumers
Better leverage on CVS’s managed drug care programs
Stronger avenues to compete with Wal-Mart and also With Walgreen's and Rite Aid
Compelling Macro Economic Factors indicating rapid growth in pharmacy benefits services.
Firm specific Factor of industry's only FDA-regulated repackaging plant.

11. Merger - SWOT Analysis Strengths Weakness
CVS, the No. 2 U.S. drugstore chain, would buy Caremark, a leading pharmacy benefits manager
A force against the growth of mail channel in retail pharmacy
Eliminate a major competitor for its retail drug business and potentially result in scale and distribution efficiencies
A better/improved credit rating.
Weakness
Integration
Possible customer and vendor conflicts
Potential that problems at Caremark may be driving the merger

12. SWOT Analysis – Contd. Opportunities Threats
Facilitate lower mail order pricing without suffering margin erosion
Required pricing power
Opportunity to tap the new markets
Deal layered upon another
Threats
Possible Merger of other PBM’s
Front store sales might go down because of aggressive competition
Wal-Mart's $4 generic drug program.

13. Stock Performance – 3 Months
Last 1 Month
CVS – 11% up
CMX – 23% up
S&P – 3% up

14. DCF Model Assumptions

15. Synergies Valuation
* See Exhibit 3 for assumptions and detailed calculation

16. Caremark Valuation Sensitivity Analysis of FCFE Valuation
Refer to Exhibit 1 and Exhibit 2

17. Exhibit 1 : FCFE Valuation - Caremark
Value in $ millions

18. Exhibit 2 : Relative Valuation - Caremark
P/E Multiples
Value $ Billion
P/BV Multiples
Value $ Billion

19. Exhibit 3 – Synergy Valuation

20. Cautionary Statement Regarding Forward-Looking Statements
This document contains certain forward-looking statements about CVS and Caremark. When used in this document, the words “anticipates”, “may”, “can”, “believes”, “expects”, “projects”, “intends”,
“likely”, “will”, “to be” and any similar expressions and any other statements that are not historical facts, in each case as they relate to CVS or Caremark, the management of either such company or the transaction are intended to identify those assertions as forward-looking statements. In making any of those statements, the person making them believes that its expectations are based on reasonable assumptions. However, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected or anticipated. These forward-looking statements are subject to numerous risks and uncertainties. There are various important factors that could cause actual results to differ materially from those in any such forward-looking statements, many of which are beyond the control of CVS and Caremark, including macroeconomic condition and general industry conditions such as the competitive environment for retail pharmacy and pharmacy benefit management companies, regulatory and litigation matters and risks, legislative developments, changes in tax and other laws and the effect of changes in general economic conditions, the risk that a condition to closing of the transaction may not be satisfied, the risk that a regulatory approval that may be required for the transaction is not obtained or is obtained subject to conditions that are not anticipated and other risks to consummation of the transaction.

21. Thank You