Tags: cvs | aetna | health | merger

CVS, Aetna: $69 Billion Merger Will Reduce Health Costs For Consumers Immediately

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Monday, 04 December 2017 07:40 AM

CVS Health and Aetna's proposed megamerger will reduce healthcare costs for consumers immediately, both companies CEOs told CNBC on Monday.

U.S. drugstore chain operator CVS Health said on Sunday it had agreed to acquire U.S. health insurer Aetna for $69 billion, seeking to tackle soaring healthcare spending through lower-cost medical services in pharmacies.

This year’s largest corporate acquisition will combine one of the nation’s largest pharmacy benefits managers (PBMs) and pharmacy operators with one of its oldest health insurers, whose national business ranges from employer healthcare to government plans.

CVS Health CEO Larry Merlo and Aetna Chairman and CEO Mark Bertolini, who say they've had a business relationship since 2010, wanted to create a health-care platform that's "easier to use and less expensive for users," the CEOs told CNBC.

"It's really the perfect time," Merlo said. "We have the ability to begin to bend that cost curve and at the same time help people achieve their best health."

Upon closing, "they'll be things we'll be able to do out of the gate," Merlo told CNBC. "Over the next couple of years, you'll see a dramatic change."

CVS plans to use its low-cost clinics to provide medical services to Aetna’s roughly 23 million medical members. In addition to health clinics and medical equipment, CVS could provide assistance with vision, hearing and nutrition.

A combined insurer and PBM will also likely be better placed to negotiate lower drug prices, and the arrangement could boost sales for CVS’s front-of-store retail business.

The company expects to invest billions of dollars in the coming years to add clinics and services, largely financed by diverting funds away from other planned investments.

That could eventually cut costs substantially, with the clinics serving as an alternative to more expensive hospital emergency room visits.

Aetna will be operated as a separate unit and Aetna’s existing leadership is expected to run the Aetna businesses, Merlo said. Aetna will have two of its directors, in addition to Bertolini join the board of CVS.

The deal comes as healthcare payers and pharmacies are responding to a shifting landscape, including changes in the Affordable Care Act, rising drug prices and the threat of competition from online retailers such as Amazon.com Inc.

The deal also comes after Aetna’s $37 billion plan to acquire smaller U.S. health insurance peer Humana was blocked in January by a U.S. federal judge over antitrust concerns. A proposed combination of peers Anthem  and Cigna was also shot down, Reuters said.

Aetna shareholders stand to receive $207 per share in the deal with CVS, the companies said. The consideration comprises $145 per share in cash and 0.8378 CVS shares for each Aetna share. Reuters first reported the terms of the deal earlier on Sunday.

Aetna shareholders will own about 22 percent of the combined company, while CVS shareholders will own the remainder.

The companies said that cost synergies in the second full year after the transaction closes— 2020 if the deal closes in the second half of 2018 as they expect — would amount to $750 million. They foresee it adding to adjusted earnings per share by the low- to mid-single digit percentage points.

Their vision expands beyond capitalizing on CVS’ existing MinuteClinic structure, which largely offers preventative services like flu shots, the companies’ chief executives told Reuters.

“When you walk into CVS there’s the pharmacy. What if there’s a vision and audiology center, and perhaps a nutritionist, and some sort of care manager?” Merlo said.

(Newsmax wire services contributed to this report).

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The company expects to invest billions of dollars in the coming years to add clinics and services, largely financed by diverting funds away from other planned investments.
cvs, aetna, health, merger
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2017-40-04
Monday, 04 December 2017 07:40 AM
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