31 Oct

CVS Health May Vertically Integrate Further by Acquiring Aetna

WRITTEN BY Sonya Bells FEATURED IN M&A and Event Driven

CVS bids for Aetna

As we saw in the previous part of this series, CVS Health (CVS) has reportedly made a bid to acquire Aetna (AET) for $200 per share, or $66 billion. The deal would combine America’s third-largest health insurer that serves around 22 million people with a pharmacy behemoth that operates the largest number of drugstores and walk-in medical clinics in the country and is among the most prominent pharmacy benefits managers.

 

CVS Health May Vertically Integrate Further by Acquiring Aetna

More about CVS Health’s pharmacy ventures

With trailing 12-month sales of $181 billion, CVS Health is a pharmacy colossus. It’s the largest pharmacy chain in the United States and operates around 9,700 pharmacies across the country. It’s also the largest operator of retail health clinics in the country with more than 1,100 clinics under its Minute Clinic banner. However, the company’s focus seems to be on becoming more than just a retail pharmacy chain.

It marked its entry into the pharmacy benefits space with the purchase of Caremark in 2007. It diversified further by acquiring Omnicare, a long-term care pharmacy, in 2015.

Acquiring Aetna would add a health insurer to the mix and vertically integrate its business further. It could also provide a significant opportunity for CVS to drive business to its retail stores and mail-order pharmacy. In the next part, we’ll look at the impact of the acquisition on CVS’s business.

Investors looking for exposure to CVS can consider the First Trust Consumer Staples AlphaDEX ETF (FXG), which invests 4.3% of its portfolio in the above three companies.

What’s the probability of success?

The deal will undoubtedly attract close scrutiny from antitrust enforcers. Competitor Walgreens Boots Alliance (WBA) recently failed in its attempt to acquire smaller rival Rite Aid (RAD) on concerns over drugstore industry consolidation.

Aetna’s proposed merger with Medicare Advantage insurer Humana was also blocked earlier this year on concerns over lowering competition.

However, it’s worth noting that CVS Health and Aetna have fewer overlapping businesses than the combinations that were blocked.

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