CVS Is Said to Agree to Buy Aetna, Reshaping Health Care Industry

Michael J. de la Merced
The New York Times
December 3, 2017

A CVS Pharmacy store in Manhattan. Credit Shannon Stapleton/Reuters

CVS has agreed to buy Aetna for about $69 billion, in a deal that would reshape the American health care industry, a person briefed on the matter said on Sunday.

The transaction, one of the largest of the year, would combine the drugstore giant with one of the United States’ biggest health insurers, reflecting the increasingly blurred lines between traditionally separate spheres of the health care industry.

Under the terms of the deal, CVS will pay about $207 a share, said this person, who was not authorized to speak publicly about the transaction before it was announced. Roughly $145 a share of that would be in cash, with the remainder in newly issued CVS stock.

An announcement could come later on Sunday.

One of the biggest drivers of the deal is Amazon, which has been rumored to be preparing for an entry into the United States’ pharmacy business. Jeff Bezos, the Amazon chief executive, and his e-commerce juggernaut have already overturned many industries: book buying, retail shopping, groceries and Hollywood, using fierce customer loyalty and enormous reach as cudgels against incumbent players. 

With that in mind, the leaders of CVS and Aetna have met several times this year, conversations that eventually led to deal negotiations.

Even setting aside Amazon, the health care industry is experiencing a turbulent transformation.

Insurers, hospitals and pharmacy companies are bracing themselves for a possible disruption in government programs like Medicare as a result of the Republicans’ plan to cut taxes. Congress remains at an impasse over the future of the Affordable Care Act, while employers and consumers are struggling under the crush of rising medical costs, including the soaring price of prescription drugs.

Many of the players are seeking shelter in the arms of their former adversaries, with well-known medical groups like the Cleveland Clinic joining with Oscar Health, an insurer. With federal officials blocking traditional mergers, like the megadeals that featured the nation’s largest insurers, including one involving Aetna and its rival Humana, companies are looking at combinations that take them beyond their traditional lines of business.

Many analysts view the combination of CVS and Aetna as a defensive move by the companies. CVS Health, which also recently signed an agreement with Anthem to help the insurer start its own internal pharmacy benefit manager, is looking to protect its business with Aetna as it fends off rivals like UnitedHealth Group’s OptumRx and others. Aetna, foiled in its attempt to buy Humana, is searching for new ways to expand its business.

If the merger goes through, it could fundamentally reshape the business of overseeing drug coverage for insurers, an industry that is dominated by three large players and that has increasingly come under scrutiny over the past year as public anger over high drug prices has expanded beyond the usual culprits, such as the pharmaceutical industry, to lesser-known players like pharmacy benefit managers.

Any deal between CVS and Aetna would be reviewed by regulators in the Trump administration, whom bankers and lawyers believe would be more tolerant of consolidation than its predecessor was. A combination of a drugstore company and an insurer is considered less problematic than a merger of two players in the same business, which could reduce competition and hurt consumers.

Such concerns ultimately sank Aetna’s efforts to buy Humana, and Anthem’s push to buy Cigna, when the Obama administration signaled its opposition to such consolidation.

The transaction is a so-called vertical merger, combing companies in two different industries. Though such deals have traditionally met little opposition in Washington, the Justice Department has sued to block AT&T’s $85.4 billion takeover of Time Warner on the grounds that it would create too powerful of a content company.