Strategy

CVS to Create Healthcare Giant With Aetna Buy

The $69 billion deal is "a case of a sector self-disrupting before an actual disruptor shows up," Forbes says, referring to Amazon.
Matthew HellerDecember 5, 2017

CVS Health has taken a huge step to diversify away from retail pharmacy services by agreeing to acquire Aetna in a $69 billion mega-merger.

CVS, the nation’s largest pharmacy chain, said the combined company would be “America’s front door to quality health care,” with CVS’s 9,700 storefronts being transformed into community medical hubs where, for example, pharmacists and nurses will be able to provide follow-up and monitoring to patients recently released from the hospital.

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

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CVS will pay $207 for Aetna, a 14% premium to the closing price of $181.31 on Friday. With 22 million members and revenue of $63 billion, Aetna is America’s third-largest health insurance provider.

“We want to get closer to the community, because all health care is local,” Aetna CEO Mark T. Bertolini told the Washington Post. “What was going to draw people into an Aetna store? Probably not a lot. We looked for the right kind of partnership.”

CVS, though, has been mired in a prolonged sales slump — pharmacy same-store sales slid 3.4% in the third quarter — and some analysts believe the Aetna deal has less to do with improving healthcare services than finding other ways to grow amid the threat of competition from Amazon and Wal-Mart Stores.

“The CVS-Aetna deal is a case of a sector self-disrupting before an actual disruptor shows up,” Forbes said, noting that healthcare companies across the spectrum have been “employing defensive moves to prepare for [Amazon’s] perceived invasion.”

According to the Los Angeles Times, one particular focus for CVS may be its pharmacy benefit management business. The company acquired Caremark’s PBM platform in 2007 and pharmacy benefits are increasingly being combined with medical coverage plans.

“What may be the most important business affected by the CVS/Aetna deal isn’t pharmacy services or health insurance; it’s the pharmacy benefit management business,” the Times said.