According to foreign media reports, US drugstore giant CVS Health announced the acquisition of Aetna, the third-largest US health insurer, expanding into health services.
On 3 December local time, CVS issued a statement announcing the acquisition of Aetna for $69 billion. Aetna shareholders will receive $207 per share, consisting of $145 in cash and 0.8378 CVS shares (worth $62, equivalent to 84% of CVS's closing price per share on 1 December). Including debt, the deal is valued at $78 billion. As part of the agreement, CVS pharmacies will offer consumers more care options. Aetna shareholders will hold about 22% of the combined company, with the remainder held by CVS shareholders.
After the transaction is completed, three Aetna directors, including current chairman and chief executive officer Bertolini, will join the CVS board. Aetna will operate as a stand-alone business unit of CVS and will continue to be led by its current management team.
The acquisition is expected to be completed in the second half of 2018. Aetna's board has approved the deal, but it still requires approval from both companies' shareholders and regulators. Analysts believe that because it is not a horizontal acquisition of a competitor, the suspicion of monopoly is relatively low, and this vertical integration acquisition faces less regulatory pressure. Experts say approval of the deal is basically a foregone conclusion, but certain conditions may need to be met to persuade antitrust authorities to approve it.
This is reportedly the largest corporate merger and acquisition of the year. CVS is one of the largest drug retailers in the United States and a leading pharmacy benefit management company. Headquartered in Rhode Island, it employs nearly 160,000 full-time staff and has annual revenue of about $178 billion, ranking 18th on the 2017 Fortune Global 500 list. Aetna is the third-largest US health insurer, with annual revenue of about $63 billion, providing medical insurance, Medicaid and other medical services to nearly 22.2 million people enrolled through employers. It is one of the earliest established US health insurers, and its domestic business ranges from corporate medical insurance to government programmes.
The two companies each have different industry competitors. In pharmaceutical retail, CVS's traditional rival is Walgreens, which in 2014 acquired Alliance Boots, Europe's largest pharmaceutical distributor, to advance its global business. In recent years, CVS has also faced challenges from new competitors. E-commerce giant Amazon is pushing into pharmaceuticals: it has obtained pharmacy licences in 14 US states and is about to launch a mail-order drug business. Aetna, meanwhile, has been criticised for lacking the diversity of its rival UnitedHealth Group, and was forced earlier this year to abandon its planned acquisition of US health insurer Humana, leaving its future growth path uncertain.
After acquiring pharmacy benefit management company Caremark in 2006, CVS expanded its business into three segments: dispensing services, retail pharmacies and pharmaceutical care. This transaction will help it expand into health services, and the cooperation between the two traditional medical service companies is also seen as a counterattack against emerging competitors.
By allying with Aetna, CVS can consolidate its strength in healthcare services while integrating the two companies' businesses, turning its stores into community health centres where customers can consult on health and insurance services, and expanding and upgrading its existing CVS MinuteClinic network. Acquiring Aetna will also increase CVS's scale, giving it stronger leverage in negotiations with drugmakers and enabling it to offer more affordable prescription drugs. In addition, the two companies will share data resources.
The two companies said full-year cost synergies will reach $750 million in the second full year after the merger is completed. The two sides expect the deal to add roughly 1 to 5 percentage points to adjusted earnings per share.
CVS president and chief executive officer Merlo said in the statement that the acquisition combines the two companies' expertise to provide consumers with a better healthcare experience: "Combining Aetna's analytical capabilities with CVS's 'human touch', we will build a platform centred on individual healthcare."
Analysts believe the CVS-Aetna deal is a major transaction in the US healthcare industry, reflecting the increasingly blurred boundaries of specific divisions within the industry, and the merger may spur other blockbuster deals in the healthcare sector.
Source: Economic Information Daily 2017-12-03