CVS Health and Aetna announce $69 Billion vertical merger

CVS Health announced on Sunday that it had agreed to buy the healthcare insurer Aenta for about $69 billion. The deal, one of the largest transactions of the year, would combine the drugstore chain with one of the biggest health insurers in the United States.

The deal, which was approved by both companies’ boards of directors, combines the 9,700 drugstores and 1,100 walk-in healthcare clinics operated by CVS with Aenta’s 22 million medical insurance members. CVS agreed to pay $207 a share for Aetna, with $145 in cash and the rest, $62, in CVS stock.

CVS -Aenta deal has the potential to reshape the United States health care industry and rapidly redefine the landscape of health care services as it was previously known. Healthcare that once was delivered in a doctor’s office may more often reach a patient over the phone, by email or an app, or even at a retail clinic.

The merger comes at a time of troubled transformation in health care. Insurers, hospitals and pharmacy companies are restructuring in anticipation of a possible disruption in government programs like Medicare as a result of the present administration’s ‘tax cut plan’. Congress remains gridlocked over the future of the Affordable Care Act, while employers and consumers are struggling to keep up with rising medical costs, including the sky rocketing price of prescription drugs.

For the past seven years, CVS and Aetna have had a business partnership to try and get people to use their local clinics, instead of a doctors office, without much success.

Fast and growing changes in technology have raised a host of new competitors — most notably from Amazon.

 Jeff Bezos, the Amazon chief executive, has been recently rumored to be eyeing an entrance into the pharmaceutical arena. Bezos has already created upheaval in many industries: book,  retail shopping, groceries and Hollywood, using customer loyalty and enormous marketing reach of Amazon.

CVS operates 10,000 pharmacies and retail clinics that could be used by Aetna to provide direct care to patients. The merged company could be better able to offer employers a “one-stop shopping for health insurance” for their workers.

On Sunday, the two companies emphasized their goal to transform CVS’s pharmacy and clinic locations into community-based sites for healthcare that would be far less expensive for patients.

But analysts and other merger experts warn that the deal could be blocked by federal antitrust regulators who are concerned that the deal could drive away fair competiton.

CVS will pay about $207 a share for Aenta’s stock, based on Friday’s closing prices. Roughly $145 a share of that would be in cash, with the $62 remainder in CVS stock. The deal is expected to close in the second half of 2018, and is still subject to a vote by shareholders of both companies.  Market regulators have a final say on the deal.

CVS’s proposed takeover of Aetna is a vertical merger, combining companies in two separate industries. While such deals have historically met little to no opposition from the federal government, the Dept. of Justice did sue in recent years to prevent AT&T’s $85.4 billion merger with Time Warner on the grounds that it would create too powerful of a content company.