CVS Health to buy Aetna for around $69 bn

CVS Health Corp (CVS) yesterday struck a deal to acquire Aetna Inc, for around $69 billion,  a deal that would combine the largest US pharmacy benefits managers with the third-largest health insurer in the US. 

If the deal is approved by regulators and shareholders, it will be the biggest acquisition this year.

Under the terms of the deal, CVS will pay Aetna shareholders $207 per share, including $145 in cash and the rest in newly issued stock.

Including Aetna's debt, the total acquisition value is $77 billion.

Post closing, Aetna shareholders will own approximately 22 per cent of the combined company and CVS Health shareholders will own around 78 per cent.

CVS Health intends to fund the cash portion of the transaction through a combination of existing cash on hand and debt financing.

The transaction is not contingent upon receipt of financing. Barclays, Goldman Sachs and Bank of America Merrill Lynch are providing $49 billion of financing commitments.

The transaction is expected to close in the second half of 2018, subject to approval by shareholders and regulators.

The deal would help the drugstore giant fortify itself against looming competition from Amazon.com Inc, and also save around $750 million annually.

The deal would merge the largest pharmacy benefits managers and pharmacy operators with one of the oldest health insurers, whose far-reaching business ranges from employer healthcare to government plans nationwide. 

CVS pesident and CEO Larry Merlo said, "This combination brings together the expertise of two great companies to remake the consumer health care experience. With the analytics of Aetna and CVS Health's human touch, we will create a health care platform built around individuals.''

''We look forward to working with the talented people at Aetna to position the combined company as America's front door to quality health care, integrating more closely the work of doctors, pharmacists, other health care professionals and health benefits companies to create a platform that is easier to use and less expensive for consumers,'' he adds.

Healthcare consolidation has been a popular route for insurers and pharmacies, under pressure from the government and large corporations to lower soaring medical costs.

Pharmacy benefit managers (PBMs) such as CVS negotiate drug benefits for health insurance plans and employers, and have in recent years taken an increasingly aggressive stance in price negotiations with drugmakers, according to Reuters.

They often extract discounts and after-market rebates from drugmakers in exchange for including their medicines in PBM formularies with low co-payments.

The deal could also help counter pressure on CVS's stock following speculation that Amazon.com Inc is preparing to enter the drug prescription market, using its vast ecommerce platform to take market share from traditional pharmacies.

A tie-up with Aetna could give CVS, which has 9,000 pharmacies, more leverage in its price negotiations with drug makers, but also subject it to more antitrust scrutiny.

Aetna earlier this year closed the door on a $34 billion deal with rival insurer Humana Inc after antitrust regulators said that combination would not be in the interest of customers, and a rival deal between Anthem Inc and Cigna Corp were anti-competitive.   

A potential deal would come after years of major changes to the US health insurance industry under former President Barack Obama whose 2010 Affordable Care Act created new rules for how insurers operate and expanded insurance to 20 million more Americans.

Republican President Donald Trump has promised to turn back many of Obamacare's Affordable Care Act's aspects, but Congress has not been able to agree on a repeal or a replacement. The lack of progress, as well as Trump's executive order to bring down healthcare costs, has created uncertainty for insurers as they head into 2018.

CVS said the merger would put the firm in a better position to help customers as healthcare costs are growing at an "unsustainable rate".

"This transaction fills an unmet need in the current healthcare system and presents a unique opportunity to redefine access to high-quality care in lower cost, local settings", CVS said in a statement.

Rhode Island-based CVS Health is the largest retail pharmacy and health care company in the US.

It is ranked seventh on the Fortune 500 and 18th on the Fortune Global 500 list and has annual revenues of $177 billion.

It employs around 250,000 people and has over 9,700 retail locations across the US.

Anthem, based in Connecticut, is the nation's third-largest health insurer and the largest member of the Blue Cross and Blue Shield Association. 

It holds the Blue Cross license in 14 states and provides health insurance to 39 million people.  In 2015, Anthem reported over $63 billion in revenues.