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CVS Agrees to Buy Aetna in $69 billion Deal 


 

In one of the year’s largest agreements, CVS Health announced Sunday that it has agreed to buy Aetna, one of the biggest health insurers in the United States, for around $69 billion. Goldman Sachs, Barclays, and Bank of America Merrill Lynch are providing $49 billion of financing to CVS to complete the deal. CVS and Aetna have said they are seeking to take on soaring healthcare spending by offering lower-cost medical services in pharmacies.

CVS will purchase Aetna for about $207 per share, however Aetna stockholders will receive $145 in cash and $62 in stock per share. Aetna shareholders will own ~22 percent of the combined company, with CVS shareholders owning the remainder.

The deal could potentially create a new giant in the prescription drugs industry; transforming CVS’s 9,700 pharmacy storefronts into community medical hubs for primary care and basic procedures; likely sparking further consolidation in the sector. Some analysts have speculated other health insurers, such as Humana and Cigna, shopping around for mergers with large retailers like Walgreens and Walmart; in a potential attempt to emulate the strategy CVS is pursuing.

“This combination brings together the expertise of two great companies to remake the consumer health care experience. With the analytics of Aetna and CVS Health’s human touch, we will create a health care platform built around individuals,” Larry Merlo, CVS President and CEO, said in a statement.

The acquisition would give CVS more scale to negotiate better prices for the prescription drugs it sells through its Pharmacy Benefits Management business, whilst also fortifying Aetna’s insurance business by creating the opportunity to offer its customers cheaper co-payments.

Once the deal is complete, three of Aetna’s directors, including their CEO Mark Bertolini, will join CVS’s board of directors. Aetna is expected to operate as a stand alone business unit led by members of Aetna’s current management team.

Both companies have said that the cost synergies could amount to $750 million in the second year after the transaction is completed. However, the two companies vision goes beyond capitalizing off of the existing MinuteClinic structure, which currently offers preventative services such as flu shots. Aetna has roughly 23 million medical members, and CVS is said to be planning to use its low-cost clinics to provide medical services in a range of areas such as assistance with vision, hearing and nutrition.

“When you walk into CVS there’s the pharmacy. What if there’s a vision and audiology center, and perhaps a nutritionist, and some sort of care manager?” CVS CEO Larry Merlo said.

CVS has said they expect to invest billions of dollars in the coming years to add clinics and services; financed mostly by diverting funds away from other planned investments.

The deal, which is still subject to approval by both regulators and shareholders, is expected to close sometime in the second half of 2018.

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