The deal would unite one of the nation's biggest drugstore operators with a company that distributes drugs nationwide through pharmacies and mail-order offices.
Under terms of the deal, shareholders at Nashville-based Caremark will receive 1.67 shares of Woonsocket, R.I.-based CVS for each share of Caremark.
CVS shareholders will own 54.5 percent of the combined company and Caremark shareholders will own 45.5 percent.
The new company will be called CVS/Caremark Corp. and will be headquartered in Woonsocket.
The pharmacy services business will stay headquartered in Nashville. Combined 2006 revenue for the companies are expected total about $75 million, a joint statement said.
The board of directors will be split evenly. Edwin "Mac" Crawford, chairman and chief executive of Caremark will become the chairman of the combined company and Tom Ryan, his counterpart at CVS, will become president and chief executive.