Media Moves

Coverage: CVS offers $66 billion for health insurer Aetna

October 27, 2017

Posted by Chris Roush

CVS OmnicareU.S. pharmacy operator CVS Health Corp. has made an offer to acquire No. 3 U.S. health insurer Aetna Inc. for more than $200 per share, or over $66 billion.

Carl O’Donnell of Reuters had the news:

A deal would merge one of the nation’s largest pharmacy benefits managers and pharmacy operators with one of its oldest health insurers, whose far-reaching business ranges from employer healthcare to government plans nationwide.

Aetna shares rose more than 11 percent, or $18.48, to $178.60, while CVS shares fell 3 percent, or $2.22, to $73.31.

Healthcare consolidation has been a popular route for insurers and pharmacies, under pressure from the government and large corporations to lower soaring costs. But both have been turned down by antitrust regulators in the past year.

Aetna and CVS declined to comment.

Max Nisen of Bloomberg Gadfly called the potential deal a stretch:

But there are a number of obstacles to such a deal. Worth $53 billion before a share-price surge Thursday and any premium, Aetna would be the largest purchase CVS has ever attempted, by a significant margin. CVS only has about $2.2 billion in cash, and already has $26.8 billion in total debt. This deal would add a whole lot of leverage.

And running a health insurer would be a very different business for CVS. While the company does work with clients to bring down health-care costs, it currently mostly deals with drugs and doesn’t directly take on health risks as an insurer does. Insurers have a huge regulatory burden from both the federal government and states, as well as a great deal of political uncertainty from Republican efforts to reform insurance markets.

And while the deal is unlikely to attract the antitrust objections that sank the attempted merger of Aetna and Humana Inc., the fact remains that this would be the largest one-shot vertical integration in U.S. health-care services history. It could still draw regulatory scrutiny and will be difficult to pull off.

Dana Mattioli and Anna Wilde Mathews of The Wall Street Journal, who broke the story, reported that the deal is a defensive move by CVS against Amazon.com:

The talks have been going on for about six months and the companies’ respective chief executives — Larry Merlo at CVS and Mark Bertolini at Aetna — have met multiple times, one of the people said.

The approach by CVS, a powerhouse in drug retail, underscores the increasingly close ties between health coverage and pharmacies, as the cost and complexity of specialty medications has continued to rise.

Aetna and CVS had already been long-term partners, signing a contract in 2010 for CVS to provide pharmacy-benefit services to the insurer.

Retailers also been on the defensive as more shoppers move to buy everyday staples online. Drugstores also aren’t immune to the trend, with Amazon.com Inc. signaling that it will enter the pharmaceutical business.

With Aetna, CVS could lock in a huge volume of new members for its pharmacy-benefit management arm, as well as customers for its drugstores. That could bolster its leverage in negotiations with drugmakers, while its oversight of health insurance could improve its ability to strike new deals that tie drug prices to patient outcomes.

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