CVS, Aetna win US approval for $69bn deal

December 2018 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

December 2018 Issue

CVS Health Corp’s $69bn acquisition of health insurer Aetna Inc won antitrust approval in the US in October. The companies now expect the deal to close before the new year.

The deal, which was announced in December 2017, will see Aetna shareholders receive $207 per share, $145 in cash and 0.8378 of a CVS share for each Aenta share held. The price represents a 29 percent premium to where Aetna’s shares were trading before rumours of the deal began to circulate in October 2017.

Aetna will operate as a standalone business within the CVS Health enterprise and will be led by members of its current management team. To secure antitrust approval, the companies agreed to sell Aetna’s standalone Medicare prescription drug plan business, known as Medicare Part D, according to the Department of Justice (DOJ). Aetna has announced that it will divest the standalone plans for prescription drugs that are part of the Medicare programme for Americans aged 65 and older and the disabled to WellCare Health Plans Inc. The sale of the Medicare prescription-drug plans to another insurer resolves the DOJ’s concern that the CVS-Aetna merger could harm consumers. Under the terms of the deal agreed with the DOJ, Aetna will have to help WellCare run the business during the transition and give it the opportunity to hire key employees.

“The divestitures required here allow for the creation of an integrated pharmacy and health benefits company that has the potential to generate benefits by improving the quality and lowering the costs of the healthcare services that American consumers can obtain,” said Makan Delrahim, head of the DOJ’s Antitrust Division.

“DOJ clearance is an important step toward bringing together the strengths and capabilities of our two companies to improve the consumer health care experience,” said CVS Health president and chief executive officer Larry J. Merlo. “We are pleased to have reached an agreement with the DOJ that maintains the strategic benefits and value creation potential of our combination with Aetna. We are now working to complete the remaining state reviews. CVS Health and Aetna have the opportunity to combine capabilities in technology, data and analytics to develop new ways to engage patients in their total health and wellness. Our focus will be at the local and community level, taking advantage of our thousands of locations and touchpoints throughout the country to intervene with consumers to help predict and prevent potential health problems before they occur. Together, we will help address the challenges our health care system is facing, and we’ll be able to offer better care and convenience at a lower cost for patients and payors.”

The two companies expect the merger to generate cost savings of around $750m annually by the end of the second year in which the deal closes. CVS believes that the deal will allow the company to offer more, and more varied, services in its retail locations as part of its evolution from a pharmacy to a healthcare hub.

A merged CVS-Aetna would be an industry leviathan; CVS had revenues of about $185bn last year, and provided prescription plans to around 94 million customers. Aetna, one of the largest insurers in the US, with revenues of around $60bn in 2017, provides cover to around 22 million people through its health plans.

Consolidation in the healthcare sector appears to be heating up. In September, the DOJ approved the $52bn merger between Cigna and Express Scripts after a six month-long investigation. The DOJ ruled that the merger would not reduce competition in the market for the services provided by pharmacy-benefits managers or raise costs for Cigna’s rivals.

The DOJ has previously blocked a $37bn merger between Aetna and US health insurer Humana Inc.

Richard Summerfield