Finance

CVS's Aetna Acquisition Will Be This Year's Biggest Deal

CVS's Aetna Acquisition Will Be This Year's Biggest Deal

It's unlikely that CVS will really transform itself from a pharmacy company to an integrated health care company, says Martin Gaynor, a professor of economics at Carnegie Mellon University.

CVS Health Corp (NYSE:CVS) announced over the weekend that it'd be acquiring Aetna. The deal comes at a time when the future of the health care industry is up in the air. Meanwhile, shares of Aetna were up 1% at $183.18.

Aetna will be operated as a separate unit and Aetna's existing leadership is expected to run the Aetna businesses, Merlo said.

"I think over time you're going to see less of that front-store retail and more health care services in their stores", said Jeff Jonas, a portfolio manager for Gabelli Funds who follows drugstores.

The move makes sense for both companies as it will bring Aetna's assets to CVS, allowing it to provide care directly to patients.

"Aetna has a talented and dedicated group of employees working to build a healthier world every day".

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"These types of interventions are things that the traditional health care system could be doing, but the traditional health care system lacks the key elements of convenience and coordination that help to engage consumers in their health", Merlo said in the release. "This is the next step in our journey, positioning the combined company to dramatically further empower consumers". "We have the ability to begin to bend that cost curve and at the same time help people achieve their best health". Expect that trend to continue as the drugstore switches more from selling products in its stores to services that can't be bought online, where retailers face formidable competition from the likes of Amazon. The deal would combine CVS' pharmacy business and pharmacy benefit manager platform, also referred to as a PBM, with Aetna's insurance business.

There is already speculation that the other insurers could now be a good strategic fit for CVS rival Walgreens as well as Walmart, which operates a lucrative pharmacy business.

Where the CVS-Aetna merger could lower costs is in streamlining communications between patients, doctors and providers, Winkler said. Jeff Bezos, the Amazon chief executive, and his e-commerce juggernaut have already overturned many industries: book buying, retail shopping, groceries and Hollywood, using fierce customer loyalty and enormous reach as cudgels against incumbent players.

Aon's Winkler expects this will lead large companies to turn to their insurer for pharmacy benefits the same way mid-sized companies have.

The deal "would definitely be scrutinized, but ultimately we still see a path for it to get through", Newshel said in an email. A merged CVS-Aetna might have enough clout to drive down prescription prices overall, but lowering prices on high-priced specialty drugs might remain an elusive goal, Winkler said.

But four antitrust experts said there is little doubt the deal will be approved, although it might need to meet conditions to convince antitrust enforcers to sign off. Regulators also sued to stop Aetna's proposed $34 billion purchase of Humana Inc. - a deal that fell apart earlier this year. Some of that business may have to be sold to address antitrust concerns.


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