CVS, Aetna in $69B health care mega-merger

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CVS, Aetna in $69B health care mega-merger

By Gina Acosta - 12/04/2017

CVS Health is acquiring Aetna for $69 billion in a deal that pushes the retailer into new growth areas, alters the competitive landscape and reshapes how consumers receive and pay for health care.

Under the terms of the merger agreement, which has been unanimously approved by the boards of directors of each company, Aetna shareholders will receive $145 per share in cash and 0.8378 CVS Health shares for each Aetna share. The transaction values Aetna at approximately $207 per share or approximately $69 billion. Including the assumption of Aetna's debt, the total value of the transaction is $77 billion.

"This combination brings together the expertise of two great companies to remake the consumer health care experience. With the analytics of Aetna and CVS Health's human touch, we will create a health care platform built around individuals. We look forward to working with the talented people at Aetna to position the combined company as America's front door to quality health care, integrating more closely the work of doctors, pharmacists, other health care professionals and health benefits companies to create a platform that is easier to use and less expensive for consumers," said CVS Health President and Chief Executive Officer Larry J. Merlo.

If approved, the $69 billion acquisition would drastically alter the health care industry and the transaction would be the largest health insurance deal in history, far exceeding the Express Scripts $29 billion acquisition of Medco in 2012.

“With about $245 billion in combined revenue and around $19 billion in combined EBITDA, we believe the combination of Aetna and CVS will create a vertically integrated company with a diversified revenue stream, unsurpassed scale and reach in the industry and the potential to reshape the entire health plan market,” Moody’s Vice President Mickey Chadha said. “The combination of CVS and Aetna will mark an industry shift towards a more seamless approach to managing healthcare costs as it brings together the overall management of a patient’s medical bills and prescription drugs under one umbrella. This will particularly be beneficial for the company as the fastest growing part of the pharmacy business is specialty drugs for patients with considerable medical needs and therefore requires a more coordinated approach to medical care.” 

CVS says the deal is a natural evolution for both companies as they seek to put the consumer at the center of health care delivery. CVS Health has steadily become an integrated health care company, and Aetna has moved beyond being a traditional insurer to focus more on consumer well-being.

"This is the next step in our journey, positioning the combined company to dramatically further empower consumers. Together with CVS Health, we will better understand our members' health goals, guide them through the health care system and help them achieve their best health," said Mark T. Bertolini, Aetna chairman and CEO. "Aetna has a proud tradition of continually innovating to address unmet consumer needs and providing leading products and services to the marketplace."

CVS says consumers will benefit from a uniquely integrated, community-based health care experience. The combined company will also be able to better understand patients' health goals, guide them through the health care system, and help them achieve their best health. CVS Pharmacy locations will include space for wellness, clinical and pharmacy services, vision, hearing, nutrition, beauty, and medical equipment, in addition to the products and services our customers currently enjoy. An entirely new health services offering available in many locations will function as a community-based health hub dedicated to connecting the pathways needed to improve health and answering patients' questions about their health conditions, as well as prescription drugs and health coverage.

This personalized health care experience will be delivered by connecting Aetna's network of providers with greater consumer access through CVS Health. This includes more than 9,700 CVS Pharmacy locations and 1,100 MinuteClinic walk-in clinics as well as further extensions into the community through Omnicare's senior pharmacy solutions, Coram's infusion services, and the more than 4,000 CVS Health nursing professionals providing in-clinic and home-based care across the nation. As a result, there will be a better opportunity to utilize local care solutions in a more integrated fashion with the goal of improving patient outcomes.

"These types of interventions are things that the traditional health care system could be doing," commented Merlo, "but the traditional health care system lacks the key elements of convenience and coordination that help to engage consumers in their health. That's what the combination of CVS Health and Aetna will deliver."

Under the terms of the merger agreement, each outstanding share of Aetna common stock will be exchanged for $145 in cash and 0.8378 shares of CVS Health common stock. Upon closing of the transaction, Aetna shareholders will own approximately 22% of the combined company and CVS Health shareholders will own approximately 78%.

The transaction is expected to close in the second half of 2018. CVS Health intends to fund the cash portion of the transaction through a combination of existing cash on hand and debt financing. The transaction is not contingent upon receipt of financing. Barclays, Goldman Sachs and Bank of America Merrill Lynch are providing $49 billion of financing commitments.

Upon the closing of the transaction, three of Aetna's directors, including Aetna's Chairman and CEO Mark T. Bertolini, will be added to the CVS Health Board of Directors. In addition, members of the Aetna management team will play significant roles in the newly combined company. Aetna will operate as a stand-alone business unit within the CVS Health enterprise and will be led by members of their current management team.

CVS Health operates 9,700 retail locations and more than 1,100 walk-in medical clinics.