In what would be the largest merger of 2017, CVS has reportedly made a historic bid to purchase Aetna, the United States’ third largest health insurance company amid a disruptive market fraught with change and political uncertainty after a historic presidential election and Republican takeover of the Congress.
The news broke by the Wall Street Journal and further detailed and examined by the Washington Post made clear that both companies are very serious about the possible more than $66 billion acquisition by CVS. CVS, which is under pressure to grow according to one report, and Aetna have had several direct talks among their executives about this crucial and possible game changer for the industry and, more specifically, these two individual entities.
As the Post noted, the two companies see mutual benefits that would create efficiency and expand the pharmacy chains’ influence within healthcare. CVS made big headlines for announcing it was discontinuing the sale of tobacco products, still carried by other pharmacy retailers like Walgreens, so the move could benefit the brand in its value proposition and marketability to health conscious consumers.
According to Reuters, that price tag of more than $66 billion is calculated approximately $200 per share in value. It is a very large scale acquisition, by any measure. The Post also reasoned that CVS is likely concerned about the possible threat of Amazon, a major online force for traditional retail disruption and one of the largest companies in the world and growing in influence (also owns the Washington Post), entering the pharmacy retail space. Amazon has not officially announced this, but according to reports, they will likely make the move eventually. Amazon took the step of buying out Whole Foods to get into the grocery niche.
For Aetna, the benefits lay in efficiency and strengthening ties to the consumer to create value in its health insurance product offerings. CVS locations feature Minute Clinics and other health related services that could assist Aetna in better care coordination and collaboration with the pharmacy, who could, in theory, in turn focus on customer loyalty and learning more about customers and their health.
Aetna is one of the largest pharmacy benefits managers in the United States. It could combine that strength with the assets of CVS and its direct service to customers as a strategy to create better value to its shareholders. It is rather unclear how this might impact care to consumers in the near- or long-term. Difficult politics in the realm of health care legislation makes news of mergers like these interesting to digest for analysts. According to the Reuters report, Aetna shares rose more than 11 percent, $18.48, to $178.60. Meanwhile CVS shares decreased 3 percent, $2.22, to $73.31. This was just after the news early Thursday. Most analysts and people familiar with health care say is that much of the cost is inefficiency combined with the high cost of pharmacy drugs. It remains among the most expensive and inefficient systems in the world, according to many experts.
What also makes the deal historic is that Aetna is one of the oldest health insurers in the United States and its business is involved in a diverse range of products and services from employer healthcare to government health plans across the country, as the Reuters report pointed out.