CVS to buy Aetna for $69 billion in deal that would shake up healthcare industry

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CVS Health Corp. plans to buy Aetna Inc. for $69 billion in a blockbuster deal that would further consolidate the U.S. healthcare industry by merging the nation’s largest pharmacy chain with a major healthcare insurer, the companies announced Sunday.

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 Aetna’s 22 million medical members. CVS agreed to pay $207 a share for Aetna, with $145 in cash and the rest, $62, in CVS stock.

For consumers, the merger would be the latest example of how the sale of drugs and other healthcare services, including patient treatment and medical insurance, are being consolidated under one roof.


The deal would enable CVS to expand its range of health services to Aetna’s vast membership, with CVS’ storefronts becoming community medical hubs with primary-care, drug-management and other services.

CVS’ locations “will include space for wellness, clinical and pharmacy services, vision, hearing, nutrition, beauty and medical equipment, in addition to the products and services” they currently provide, the company said.

“We look forward to working with the talented people at Aetna to position the combined company as America’s front door to quality healthcare,” CVS Chief Executive Larry Merlo said in a statement.

Aetna’s chief executive, Mark Bertolini, said the deal was “the next step in our journey, positioning the combined company to dramatically further empower consumers.”

The companies said Bertolini and two other Aetna directors would be added to CVS’ board after the deal closes.

Gerald Kominski, director of the UCLA Center for Health Policy Research, said, “It remains to be seen whether this [merger] is actually going to drive costs down” for consumers but that savings could materialize “if it becomes a lower-cost alternative to sending people to a doctor’s office or having people show up in the emergency room.”


“To the extent they can help manage the Aetna members’ conditions — particularly people who might otherwise end up in the ER or were recently hospitalized — this could lower costs,” Kominski said. “We’ll see how it pans out.”

A CVS-Aetna tie-up also could affect consumers by sparking further consolidation among other major players in the healthcare industry.

For the companies, the merger is seen as a way to help them mine new areas of sales growth and, in the case of CVS, fend off a potential threat to its pharmacy business from e-commerce giant, which is eyeing a move into the pharmaceuticals business.

The companies said the merger would produce $750 million in operating cost savings. Adding Aetna’s membership to CVS’ business — which includes nearly 900 retail locations in California — also could give CVS added leverage in negotiating for lower drug prices with makers of pharmaceuticals, analysts said.

Aetna, meanwhile, would use the CVS deal to move past its scuttled plans to acquire rival insurer Humana Inc., and to keep pace with UnitedHealth Group, the nation’s largest health insurer.

UnitedHealth has been aggressively expanding into filling prescriptions as a pharmacy benefit manager (PBM), and it owns more than 400 surgery centers and urgent-care clinics. It also runs medical practices for about 22,000 doctors nationwide.


PBMs negotiate with drug companies for volume discounts and run prescription drug plans for insurers, employers and government agencies. CVS’ Caremark unit is among the nation’s largest pharmacy benefit managers, but it faces stiff competition in that market from UnitedHealth and others.

When rumors of a CVS-Aetna merger surfaced in late October, analyst Jeffrey Loo of CFRA Research wrote in a note that “we are not surprised” by the merger talks because of “the success of UnitedHealth Group’s PBM unit, Optum,” and plans by another health insurer, Anthem Inc., to form its own pharmacy benefit management unit.

Anthem in October announced its PBM plan, called IngenioRx, and said it would be in partnership with CVS. It was not immediately clear what would happen to that plan if CVS acquires Aetna.

But a CVS-Aetna merger would require clearance by federal antitrust regulators, and approval is by no means certain. Indeed, Aetna dropped its $34-billion bid for Humana in February after a federal judge blocked it on antitrust grounds.

In addition, the Justice Department recently sued to block AT&T Inc.’s plan to buy Time Warner Inc., which, like CVS and Aetna, is a so-called vertical combination because the firms are in largely different businesses.

With CVS and Aetna, “it’s a little hard to read the tea leaves, and we’re talking about entirely different industries” than the AT&T/Time Warner deal, “but who knows,” said Carl Tobias, a law professor at the University of Richmond.


“It will depend on the quality of the case they make with the regulators, and it’s probably going to go through,” Tobias said.

Still, a combination of CVS and Aetna “would finally meet Aetna’s goal of selling itself without the adverse effects on competition that Aetna’s failed deal with Humana would have had,” Jack Curran, an analyst at research firm IBISWorld, said in a note last week.

The businesses of CVS and Aetna also have little overlap and thus the merger stands a better chance of being cleared, David Larsen, an analyst at investment bank Leerink Partners, said in a recent note.

“We also believe that the Trump administration is more business-friendly” and that regulators may view a CVS-Aetna deal “as a way to continue to put pressure on manufacturers and drug prices,” Larson said.

CVS said that Aetna will operate as a standalone business in the merged company and continue to be run by its existing management team.

The two companies hope to close the deal, which still must be approved by shareholders, in the second half of next year. CVS said it intends to fund the acquisition through a combination of cash on hand and debt. Several Wall Street banks are providing $49 billion in financing commitments, it said.


CVS’ revenue last year totaled $178 billion, while Aetna’s revenue was $63 billion. If the takeover offer is $207 a share, that would be a 14% premium to Aetna’s closing price of $181.31 on Friday.

CVS was founded in Lowell, Mass., in 1963 by brothers Stanley and Sidney Goldstein and their partner Ralph Hoagland. CVS stood for Consumer Value Stores, and the shops initially sold health and beauty products.

Now based in Woonsocket, R.I., CVS grew in large part by acquiring other drugstore chains, including buying 700 Sav-On and Osco stores from Albertsons in 2006 that gave CVS a major presence in Southern California.

The Associated Press contributed to this report.


4:35 p.m.: This article was updated with more details about CVS’ healthcare plans and a health analyst’s comments.


3:45 p.m.: This article was updated with the companies confirming the merger deal, quotes from their CEOs, a law professor’s comments on antitrust issues and details about CVS’ history and growth in Southern California.

2:25 p.m.: This article was updated with analysts’ comments and additional details about pharmacy benefit management units at CVS, Aetna and their rivals.

1:20 p.m.: This article was updated throughout with staff reporting.

This article was originally published at 9:35 a.m.