Deal of the Week: CVS/Aetna

The biggest deal of the year (so far) was announced on Sunday, December 3, no doubt timed to give media outlets a fresh story to begin the week. By now you know that CVS Health Corp. (NYSE: CVS) and managed care giant Aetna (NYSE: AET) plan to merge in mid-2018, to the tune of $77 billion (including Aetna’s debt).

The deal was first reported in October by The Wall Street Journal, with talk of $200 to $205 per share for Aetna. The final price is $207 per share in cash and stock: $145 in cash and $62 in stock.

Besides being the largest deal announced in 2017 (since 2015, in fact), the unusual combination portends major changes in the U.S. healthcare market. Or not. Skeptics abound regarding the deal’s chances of passing regulatory muster.

And despite both companies’ CEOs repeating their “new front door for health care” mantra in the days immediately following the announcement, there’s no guarantee that consumers will flock to their neighborhood CVS (there are some 9,700 outlets in the United States) to receive minor health diagnoses and treatment. Until prospective patients see the savings on prescription drugs and lower health insurance premiums, they may stay away in droves.

If the deal to acquire Aetna does occur, CVS would gain millions of new members for its own pharmacy benefits management business, as well as more foot traffic through the front of its retail stores. On the third quarter earnings call in November, CVS CEO Larry Merlo discussed the company’s five-year agreement with Anthem (NYSE: ANTM), announced earlier this year.

Beginning in 2020, CVS agreed to support Anthem’s new PBM, IngenioRx, by managing claims processing and prescription fulfillment through its mail-order and specialty pharmacies. Anthem launched IngenioRx after terminating its long-standing PBM relationship with Express Scripts (NYSE: ESRX) earlier this year, but effective in 2020.

 

 

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