CVS and Aetna have agreed to merge in an attempt to harness soaring healthcare costs. This merger will combine one of the country’s oldest insurance companies with one of the largest pharmacy benefits managers and pharmacy chains. CVS will ante up $69 billion to purchase Aetna.
Terms of the Deal
Aetna stockholders will receive $207 per share. The compensation has two parts: $145 in cash and 0.8378 CVS shares for each share of Aetna. To put this offer in perspective, Aetna shares were trading around $130 per share a year ago. When the dust settles, CVS shareholders will own 78 percent of the combined company, and Aetna shareholders will own the balance.
The merger is expected to close in the second half of 2018.
Benefits of the Merger
CVS management projects that synergies resulting from the merger will amount to $750 million in 2020, the second full year of combined operations. Analysts believe these savings will add two to five percent to adjusted earnings per share.
Access to More Medical Services
Your next doctor’s visit may be to the closest CVS pharmacy. Larry Merlo, CEO of CVS, has a vision of expanding the services presently available at the company’s existing low-cost MinuteClinics. These clinics mostly offer preventative services, such as flu shots. He would like to add facilities for audiology and vision and then, perhaps, a nutritionist and an overall advisor for care management. Aetna has 23 million customers who would be directed to these clinics for their medical services.
Changes in How Healthcare is Provided
The Affordable Care Act and the threat of Amazon entering the medical market has altered the landscape of healthcare. Insurance companies and pharmacies are scrambling to deal with rising drug prices and requirements to insure everyone, regarding of their medical condition.
The CVS-Aetna merger will boost the leverage of their PBM to negotiate lower drug costs with drug manufacturers and provide savings to consumers. In the past, critics have claimed that PBMs have gotten better prices for prescriptions but have not passed these savings on to the public. The merger will eliminate the need for a separate PBM to make a profit. Instead, any savings would be kept inside the combined companies. However, whether these savings get passed to the consumer may depend more on the threat from Amazon than from any unselfish moods of corporate executives.