Reports: CVS in talks about acquiring Aetna

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Analyst: News of possible deal 'not a complete surprise'

Published reports said Thursday that CVS Health is in negotiations to acquire health insurer Aetna.

CVS reportedly will offer more than $200 share, or about $66 billion, to purchase the health benefits giant, according to anonymous sources cited by the Wall Street Journal, which originated the story about a potential CVS-Aetna deal.

Bloomberg reported that a combination of CVS and Aetna would create a health benefits and services behemoth that could challenge UnitedHealth Group, the nation’s biggest health insurer, whose units include OptumRx, a pharmacy benefit manager, and health clinics.

Aetna earlier this year was rebuffed in an effort to build up scale. In February, after being blocked by a federal court, Aetna and fellow health insurer Humana opted to terminate their $37 billion merger deal.

According to Barron’s, the news of a possible union of Aetna and CVS would raise competitive questions about the PBM market and the health insurance arena.

“A Wall Street Journal report of potential acquisition of Aetna by CVS is not a complete surprise,” Jefferies analyst Brian Tanquilut wrote in a research note late Thursday. “Both management teams have commented in the last 12 months about the need to more closely collaborate with key strategic partners, including each other. Strategically, the vertical integration of retail pharmacy, PBM and payor fits with broader health care themes of expanded access, consumerism and cost reduction. Further, it would address each company’s need for a fresh script.”

TheStreet.com said a possible addition of Aetna would pull CVS deeper into the health care realm and farther away from its retail origins, a move that started with its 2006 acquisition of Caremark Rx.

CVS Health’s integrated pharmacy care businesses include the drug store chain CVS Pharmacy, CVS Caremark PBM, in-store medical clinic operator MinuteClinic and specialty pharmacy CVS Specialty.

Tanquilut noted that last year CVS lost key contracts — Prime Therapeutics and TRICARE — while Aetna has been angling to bring care closer to the consumer, something that might be achieved via an expanded relationship with CVS.

“We see the potential combination of CVS and Aetna as a logical progression of the two companies’ relationship,” Tanquilut said in his report, citing UnitedHealth Group’s success with its OptumRx PBM. “Anthem’s recent decision to establish its own PBM, in our view, provides further validation, if not need for MCOs [managed care organizations] to be more directly aligned with their PBM providers. As Aetna has mentioned previously, including at our August site visit, CVS’ capabilities, including MinuteClinic and the Coram home infusion business, could enable the health plan to improve health outcomes and reduce cost trend, particularly as providers and health plans seek to more closely engage members/consumers.”

Meanwhile, Investors Business Daily said speculation about a CVS-Aetna deal surfaced not long after reports that Amazon has landed wholesale pharmacy licenses in a dozen or more states.

The pharmacy sector has been concerned about mounting reports that Amazon could enter the Rx arena. The Journal also reported Thursday that the specter of Amazon as a pharmacy industry player motivated CVS to explore strategic options.

“CVS’ front-end retail pharmacies see continued pressure from Amazon competition and broad-based softening in consumer demand,” Tanquilut wrote. “We would see an Aetna merger as a catalyst that accelerates the conversion of a greater portion of retail square footage to health care services, i.e. labs, dialysis, ophthalmology, audiology.”

*Blog post updated with analyst comment.



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