The proposed merger of Caremark Rx Inc. and CVS Corp. not only means big changes at Nashville's largest public company. It could also shake up the downtown real estate market.
On Wednesday, Nashville-based Caremark said it will merge with Rhode Island-based CVS in a deal worth about $21 billion. The home base for the merged company will be in Rhode Island, but the pharmacy benefit management program will be housed here.
The proposed merger marks a major transition for Caremark, a leading pharmacy benefit manager and one of several corporations that have relocated to Nashville in recent years. Like Louisiana-Pacific Corp., the building products supplier that moved here from Oregon, Caremark chose a downtown home, settling on 211 Commerce St., which is now decorated with the company's name.
It's not clear how the CVS/Caremark deal will impact Caremark's employee base in Nashville, which totals 200 at its headquarters and call center.
The wild card is CVS' $3 billion pharmacy benefit management business, which will be rolled into Caremark. If that integration involves executives and support staff moving here, there's a good chance the combined entity will be in the market for additional space.
Caremark now occupies one floor - about 22,000 square feet - at 211 Commerce, but that building is fully leased. If the company decides to pursue additional space in downtown Nashville, it will have a handful of high-profile options. Eakin Partners' SunTrust Plaza is being built two blocks west on Commerce, while an Atlanta developer has proposed a 28-story office tower in SoBro that would be anchored by law firm Bass Berry & Sims.
In addition, Nissan North America now occupies 240,000 square feet in the BellSouth Tower, but will move to Cool Springs when its new headquarters building is completed in mid-2008. And the Fifth Third Center has space available after Ernst & Young moved out earlier this year.
Those questions will be addressed as CVS and Caremark move forward with their deal. In a conference call on Wednesday, CVS CEO Tom Ryan said the companies expect to realize $400 million in savings from the deal, but are also looking to generate additional revenue.
"This is not a cost game," he said. "We're not going to save our way to success here."
Ernest Hyne II, a health care attorney with Harwell Howard Hyne Gabbert & Manner, says an obvious concern for the deal is that the company's corporate headquarters will move to Rhode Island, taking with it the decision-makers, executive talent and corporate-giving arms that are associated with it.
However, if the deal goes through, there is a possibility for some spin-off businesses that could take root in Nashville, he says.
"In those transactions, the FTC leans on those companies and says you have to dispose of certain assets, otherwise we won't give you clearance," says Hyne. "Either it runs into a buzzsaw and can't get accomplished ... or these businesses are spun out, and some of them might be headquartered here."
Nashville Business Journal - by Josh Flory and Erin Lawley