After more than a month of speculation and market rumors, CVS Health Corp (NYSE: CVS) announced a $69 billion buyout bid for health insurance giant Aetna Inc (AET) on Sunday.
CVS is making the aggressive move after multiple reports that Amazon.com (AMZN) is considering entering the health care business.
Under the terms of the deal announced on Sunday, Aetna shareholders will receive $207 per share, $145 in cash and $62 in CVS stock. The $207-per-share price represents a 14.1 percent premium to Friday’s closing price. In the past six weeks, Aetna stock was up more than 19 percent on buyout speculation.
CVS and Aetna say the deal will lower health care costs for employees of their large corporate customers and let the company negotiate down drug prices and better manage the use of those medicines.
“It’s the lower overall cost of therapy. It’s not just the drugs. It’s not just the PBM (prescription benefit manager). It’s the overall outcome for the patient,” Aetna CEO Mark Bertolini told Reuters.
Investors will likely be concerned about the potential antitrust implications of a merger between two companies with market caps larger than $50 billion each. The combination of CVS and Aetna is a type of merger often referred to as a “vertical merger” since the two companies represent different parts of the pharmacy supply chain and do not directly compete.
Earlier this year, Aetna had a proposed “horizontal” merger with competing health care giant Humana (HUM) blocked by a federal court on antitrust grounds.
The U.S. Department of Justice has historically not taken issue with vertical mergers, but it recently filed an antitrust lawsuit against the proposed vertical merger between AT&T (T) and Time Warner (TWX).
Amazon has been exploring the pharmacy business for months and is reportedly on the cusp of making a decision about its intentions. Analysts say CVS may be taking a proactive step to beat Amazon to the punch.
“We see this potential deal as both evolutionary and revolutionary given the dynamic health care environment and push toward consumerism coupled with a challenged retail backdrop and the need to combat a looming AMZN threat,” Citigroup analyst Alvin Concepcion says.
Mizuho analyst Ann Hynes says a CVS-Aetna partnership could serve as a template for the future of the pharmacy business.
“Similar to formulary management in pharmacy, this type of partnership between a retail pharmacy and a managed care company could be the next generation of formulary management in health care services,” Hynes says.
The proposed merger is…
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