Landmark merger would join pharmacy services, health insurance giants

WOONSOCKET, R.I. — CVS Health plans to acquire health insurer Aetna for roughly $69 billion in a first-of-its kind deal aimed at fending off challenges in retail and health care.

The landmark CVS-Aetna merger deal comes at time when insurers are under pressure to lower medical costs, and retailers are under attack from new competitors, including a more powerful Amazon.

The agreement creates the first health care triple threat, combining CVS’s pharmacy and pharmacy benefit manager (PBM) platform with Aetna’s insurance business.

CVS will acquire all outstanding shares of Aetna for a combination of cash and stock. Under the terms of the CVS-Aetna merger agreement, which was unanimously approved by the boards of both companies, Aetna shareholders will receive $145 per share in cash and 0.8378 CVS Health shares for each Aetna share.The transaction values Aetna at approximately $207 per share or about $69 billion. Including the assumption of debt, the total value of the transaction is $77 billion.

Aetna CEO Mark Bertolini and CVS Health CEO Larry Merlo.

CVS Health president and chief executive officer Larry Merlo said during a conference call, “This transaction will create a leading health care platform that will revolutionize the consumer health care experience. This compelling strategic combination will unlock meaningful value for patients, payers, providers and shareholders. It also fills an unmet need in the current health care system and presents a unique opportunity to redefine access to high-quality care in lower cost, local settings whether in the community, at home, or through digital tools.”

He continued, “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. We look forward to working with the talented people at Aetna to position the combined company as America’s front door to quality health care, integrating more closely the work of doctors, pharmacists, other health care professionals and health benefits companies to create a platform that is easier to use and less expensive for consumers.”

He pointed out that this is a natural evolution for both companies as they seek to put the consumer at the center of health care delivery. “CVS Health has steadily become an integrated health care company, and Aetna has moved beyond being a traditional insurer to focus more on consumer well-being.”

Merlo said that members of the Aetna management team will play significant roles in the newly combined company. “Aetna will operate as a stand-alone business unit within the CVS Health Enterprise and will be lead by members of their current management team.”

Mark Bertolini, Aetna chairman and CEO, said, “This deal represents a major step forward in creating consumer-centric health care. Together with CVS Health, we will better understand our members’ health goals, guide them through the health care system and help them achieve their best health. Aetna has a proud tradition of continually innovating to address unmet consumer needs and providing leading products and services to the ­marketplace.”

Bertolini continued, “Aetna has a talented and dedicated group of employees working to build a healthier world every day. Our combined company will be more competitive in the marketplace and accelerate progress toward achieving this mission.”

Upon the closing of the CVS-Aetna merger transaction, Bertolini and two other Aetna directors will be joining the CVS board.

Today, increasing numbers of consumers are taking on more and more responsibility for paying for their health care as the burden of costs is being shifted to them. “Together, CVS Health and Aetna will be a trusted community partner who will help consumers better manage the cost of the health care they need,” said Merlo. The combined company will also be well positioned to more effectively meet the health needs of many more people, especially the 50% of Americans with chronic conditions that account for more than 80% of all health care costs. Finally, capabilities developed following this transaction will directly benefit clients of both companies and enable them to better manage their health care costs.”

He added that consumers will benefit from a uniquely integrated, community-based health care experience. “The combined company will also be able to better understand patients’ health goals, guide them through the health care system, and help them achieve their best health. There will be expanded opportunities to bring health care services to consumers every day.”

He said that CVS Pharmacy locations will include space for wellness, clinical and pharmacy services, vision, hearing, nutrition, beauty, and medical equipment, in addition to the products and services customers currently enjoy. “An entirely new health services offering available in many locations will function as a community-based health hub dedicated to connecting the pathways needed to improve health and answering patients’ questions about their health conditions, as well as prescription drugs and health coverage.”

This personalized health care experience will be delivered by connecting Aetna’s extensive network of providers with greater consumer access through CVS Health. This includes more than 9,700 CVS Pharmacy locations and 1,100 MinuteClinic walk-in clinics as well as further extensions into the community through Omnicare’s senior pharmacy solutions, Coram’s infusion services, and the more than 4,000 CVS Health nursing professionals providing in-clinic and home-based care across the nation. As a result, there will be a better opportunity to utilize local care solutions in a more integrated fashion with the goal of improving patient outcomes. The combined entity will be able to help address the growing cost of treating chronic diseases in important ways.

Merlo said the combined entity will be able to help address the growing cost of treating chronic diseases in important ways. “For example, there are 30 million Americans suffering from diabetes, costing the health care system approximately $245 billion annually. As a follow up, patients can receive counseling on medication adherence, pick up diabetes-related supplies and engage ancillary services such as counsel on weight loss and programs designed to reverse diabetes through nutrition. This will result in better control of their blood sugar levels and better health, which should be appreciated by both patients and their doctors. That’s what the combination of CVS Health and Aetna will deliver.”

Some analysts report the acquisition gives CVS more scale to bargain for better prices for the prescription drugs it sells through its PBM business. It also fortifies Aetna’s insurance business by creating the ability to offer its customers cheaper co-payments, presumably only in CVS stores.

Jefferies analyst Brian Tanquilut said of the deal, “there is a need for a more integrated and community-based health care approach, and we believe that CVS is a strategic asset that has the ability to position itself as a unique player that can provide a solution to this void in the U.S. health care system.”