Wounded by the CalPERS bribery scandal and other problems, a New Jersey pharmaceutical-benefits company is being sold.

Medco Health Solutions Inc., one of the giants of the drug-benefit industry, on Thursday agreed to a $29.1 billion takeover by rival Express Scripts Inc.

Such a deal would have been unthinkable a few months ago, when Medco was flying high. But the New Jersey company ran into a series of problems that began with its entanglement in the CalPERS bribery case.

"This year has been a head-spinner for this (Medco) management team, starting out with the CalPERS issues," said investment analyst Arthur Henderson of Jefferies & Co. in Nashville, Tenn.

Brad Pacheco, a spokesman for the California Public Employees' Retirement System, said the pension fund had no comment on Medco's sale.

CalPERS said in March that the Securities and Exchange Commission and the California attorney general's office were investigating Medco's relationship with Alfred Villalobos – the man accused by state officials in a lawsuit of bribing fund executives.

According to a CalPERS investigator, Medco paid Villalobos more than $4 million in 2004 to help win a $500 million-a-year drug-benefits contract with the pension fund.

Medco acknowledged hiring Villalobos but said he was brought aboard to help resolve an audit of the company's previous work for CalPERS.

Either way, the disclosure was damaging to Medco and its chief executive, David Snow, who had met with Villalobos and several CalPERS officials at Villalobos' Lake Tahoe mansion.

In mid-March, CalPERS severed ties with Medco, halting talks on a deal to renew the big drug contract, which runs through December.

Even bigger customers dumped Medco following CalPERS' decision. In late May, the firm lost a $3 billion contract to supply drugs to federal employees. On Thursday, Medco confirmed weeks of speculation that it was losing another major client, UnitedHealth Group Inc.

Given the business it was losing, selling the company "clearly was a defensive move and probably the right move," Henderson said.

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