Investors decided Monday that a dose of Express Scripts (ESRX) shares would be a tonic for their portfolios after the company announced the purchase of WellPoint (WLP) pharmacy benefit management unit.

The St. Louis-headquartered company, the nation s third-largest drug benefits company, will pay $4.68 billion for the unit, which is the country s third-largest pharmacy benefits business, behind Medco Health Solutions (MHS) and CVS Caremark (CVS) . Under the deal, Express Scripts would run WellPoint s pharmacy benefits business for 10 years.

Express Scripts Chairman and CEO George Paz said the company will now manage 750 million prescriptions nationally, giving it a better edge to compete against its bigger two competitors.

Oppenheimer & Co. analyst Carl McDonald said WellPoint could emerge stronger from the deal, since it was able to get a relatively high price for the pharmacy benefits management unit about 23% of its market cap.

As health-care reform takes a greater place in national policy debate, Thomas Weisel Partners analyst Steven Halper wrote Monday that bigger will be better as companies try to seize any possible advantage. We view the transaction positively as the larger scale combined company should be more competitive in bidding for new business as well as negotiating lower drug costs from manufacturers, he wrote.

Bottom Line: Hold
Merger investments are risky even for businesses that don t grab headlines, and policy reforms could have a big impact on drug costs.

Gannett Shorts Get Squeezed?

The headlines haven t been printed, but expectations for newspaper publisher Gannett (GCI) had investors anticipating bad news, making Monday s double-digit jump something of a surprise.

Shareholders of the country s largest newspaper publisher appear to be in the midst of a short squeeze after McLean, Va.-based Gannett last week was able to refinance $1 billion worth of debt at higher interest rates, but on a longer repayment schedule. Pessimists had earlier suggested the publisher of USA Today and dozens of other newspapers could face possible bankruptcy.

It sort of takes away the drumbeat saying Gannett is going to get into financial trouble, says Edward Atorino, an analyst at Benchmark. He said Chicago-based Ariel Investments last week increased its stake from about 6% to 12%, adding that such a move could be making short sellers nervous.

About 30% of Gannett s stock is held short, according to the web site shortsqueeze.com, which means investors expect it to keep going down if they re going to profit. Unexpected good news, or, in Gannett s case, less bad news than expected, forces short sellers to buy shares and get out of their short positions, often as prices rise rapidly.

Atorino doesn t expect Gannett s troubles to disappear, adding that the entire newspaper industry remains hobbled by plunging ad revenues and declining readership.

Gannett s first quarter, he says, is going to be absolutely horrendous.

Bottom Line: Sell
Take advantage of the rapid rise and get out with some gains.

Genworth Won t Get Government Help

Shares of insurer Genworth Financial (GNW) continued to decline Monday after last week s announcement the company won t be getting government bailout money from the Troubled Assets Relief Program.

The insurance sector, afflicted by many of the same woes as America s banks, saw renewed investor interest last week after news that some insurers could be eligible for TARP funds. The SPDR KBW Insurance fund (KIE), and exchange-traded fund for the insurance sector, rose 12.5% from its Tuesday close through Friday.

But on Thursday, Genworth was told by the Treasury Department that the deadline for its purchase of a bank holding company, needed to qualify for the TARP funds, had passed and would not be extended. That also scuttled Genworth s plan to buy InterBank, of Maple Grove, Minn., and be eligible to participate in Treasury's Capital Purchase Program.

Morningstar analyst Alan Rambaldini wrote last week that while the government money would come at a cost to insurers, including additional interest payments and increased government oversight, we believe the broadening of the TARP mandate to include life insurance companies confirms our suspicions of many of those companies' balance sheets and the precarious position that investment losses have put them in.

Bottom Line: Sell
Without a government lifeline, this insurer carries a different level of risk.