CVS Health’s potential US$66bn move to buy Aetna Inc. raises concerns

01 Nov 2017 --- A few days after US pharmacy operator CVS Health Corp reportedly made a potentially market-changing offer to acquire health insurer Aetna Inc. for more than US$200 per share, or over US$66 billion, analysts have questioned whether it could mark the preparation for Amazon’s arrival in the market and spark antitrust concerns. Since the move was reported, it has raised questions over whether Amazon’s supposed intentions in moving into the prescription drug industry are truly motivating the acquisition and whether the consolidation would be blocked by regulators.

 The move could shore up CVS’ vulnerable pharmacy business and start another round of deals in an industry fearing Amazon’s arrival in the prescription drug market, analysts have said.

If the acquisition went ahead, it would merge one of the US’ largest pharmacy benefits managers and pharmacy operators with one of its oldest health insurers. The reports of the offer also come soon after CVS said it was forming its own pharmacy benefit management company, IngenioRx, with Anthem, an Aetna rival.

Shares of Aetna, the third-largest US health insurer, closed down 3 percent last Friday after closing 12 percent higher on Thursday thanks to reports of the deal. CVS Health was down 5.9 percent. Analysts note that the drop could be more related to Amazon entering the healthcare space than to pre-acquisition arbitrage.

In an industry where standalone businesses are diminishing, analysts and investors seem to agree that the potential partnership between CVS and Aetna would secure the companies a place in the future health space. Diversifying could help the Rhode Island, US-based pharmacy compete against the potential of Amazon and the threat of UnitedHealthcare – which is able to use data analytics, pharmacy benefits and physician groups – among other organizations.

“A potential combination would diversify CVS profit streams ahead of an Amazon entry and set the stage for a new healthcare-retail delivery model,” Morgan Stanley analysts say in a note.

Response to Amazon
Reports of the proposed deal have come after multiple media outlets reported that Amazon.com Inc. is planning to move into online prescription drug sales, posing a potential danger to brick-and-mortar pharmacies in the US. That possibility appears to have hit shares of most drugstore operators due to fears that the online retailer would use its established e-commerce platform to benefit it in prescription drug sales.

“We believe CVS does need to respond to the potential threat and strike a different path,” Cowen & Co analyst Charles Rhyee says in a note.

Amazon poses new unknowns for the healthcare industry. Experts believe it could take the internet commerce company about a decade to even get 10 percent market share, but the market still reacted to its potential involvement. CVS shares were trading in tandem with second-largest US pharmacy store chain Walgreens last Friday afternoon.

However, analysts have also pointed out that the companies could also have had UnitedHealth Group on their minds when proposing the deal. UnitedHealth is the nation’s largest health insurer, and it owns surgery centers and urgent care clinics as well as filling prescriptions.

CVS-Aetna’s offerings would range from employer healthcare and government plans to managing benefits and running drug stores. The two companies overlap in at least one area – providing Medicare Part D pharmacy prescription drug coverage.

The deal could also trigger a wave of consolidation across the industry, according to some analysts. Aetna abandoned plans to merge with rival Humana earlier this year after antitrust enforcers said that the combination and a rival deal between Anthem Inc. and Cigna Corp. were anti-competitive.

Inevitably, the proposed deal has raised further questions from analysts about the US’ competition problem, with market concentration being a key concern. Antitrust concerns could conceivably even lead to CVS being blocked from buying Aetna.