In a stunning scoop published minutes before the close, WSJ reports CVS Health is in talks to buy Aetna, a defensive acquisition that may help the company fend off Amazon should the e-commerce giant follow through on flirtations with the pharmacy business.
Earlier this week, Aetna said it would sell its group life and disability business to The Hartford Group for $1.45 billion in cash. Aetna recently moved its headquarters from Hartford, Conn., where the company was founded more than 150 years ago, to New York City. CVS reportedly offered to pay more than $200 a share vs. Aetna's market price of $178.60. Aetna has a $60 billion market capitalization. Aetna shares soared more than 10% on the news, while CVS shares pared their earlier drop, but moved lower again into the close. Managed-care stocks also jumped on the news.
If a deal were to be struck, it would rank as the year’s largest. Year to date, global M&A volume is down 8% at $2.6 trillion, according to Dealogic. Megamergers have been rare.
One can't help but wonder if a bid by CVS will spark another iteration of the health-insurer merger frenzy of 2015. While most of the big deals from that period, including Aetna's one-time agreement to buy Humana and Anthem's proposed merger with Cigna, later foundered in the face of regulatory opposition, with Amazon possibly looking to force its way into the pharmacy business, the pressure to consolidate is intensifying. Deals between pharmacy companies have also fallen apart. Earlier this year, Walgreens Boots Alliance Inc. ended its agreement to buy all of Rite Aid Corp. for $9.4 billion amid antitrust resistance. Walgreens is now seeking to buy half the company’s stores.
WSJ pointed out that the deal underscores the increasingly close ties between health coverage and pharmacies, as the cost and complexity of specialty medications has continued to rise. Drugstores also haven't been immune to the broader retail malaise (which has again been driven by Amazon), so diversifying makes sense. 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, WSJ reported. In buying Aetna, CVS would also evolve more in the direction of UnitedHealth Group Inc., the parent of both the biggest U.S. health insurer and a health-services arm known as Optum, which includes a PBM and a growing number of clinics and physician practices.