(Reuters) – US operator of pharmacy chain CVS Health Corp ( CVS.N ) said on Sunday it had agreed to acquire US health insurer Aetna Inc ( AET.N ) for $ 69 billion, seeking to address the rising costs of medical care through lower-cost medical services in pharmacies.
This year's largest corporate acquisition will combine one of the nation's largest pharmacy benefit managers (PBMs) and pharmacy operators with one of its oldest health insurers, whose national business ranges from health plans from the employer to government plans.
The agreement comes after the Aetna plan of $ 37 billion to acquire smaller health insurance in the United States, Humana Inc ( HUM.N ) was blocked in January by a federal judge from I know. UU For antitrust issues. A proposed combination of pairs Anthem Inc ( ANTM.N ) and Cigna Corp ( CI.N ) was also shot down.
Aetna shareholders will receive $ 207 per share in the agreement with CVS, the companies said. The consideration comprises $ 145 per share in cash and 0.88378 shares of CVS for each Aetna share. Reuters first reported the terms of the agreement early on Sunday.
The shareholders of Aetna will own approximately 22 percent of the combined company, while the shareholders of CVS will own the rest.
Companies said cost synergies in the second full year after the transaction closes – 2020 if the agreement closes in the second half of 2018, as they expect – would amount to $ 750 million. They foresee this by adding to the adjusted earnings per share the percentage points from a low to a half middle digit.
His vision extends beyond capitalizing on CVS's existing MinuteClinic structure, which largely offers preventive services like flu vaccines, company CEOs said in an interview.
"When you enter CVS, there is the pharmacy, what if there is a vision and audiology center, and maybe a nutritionist, and some kind of care manager?" Said CVS CEO Larry Merlo.
Aetna will operate as a separate unit and it is expected that Aetna's existing leadership will run Aetna's business, Merlo said. Aetna will have two of its directors, in addition to the CEO of Aetna, Mark Bertolini, will join the CVS board.
The agreement occurs when payers and pharmacies respond to a changing landscape, including changes to the Affordable Care Act, rising drug prices and the threat of competition from online retailers such as Amazon.com Inc ( AMZN.O ).
CVS plans to use its low-cost clinics to provide medical services to the approximately 23 million Aetna medical members. In addition to health clinics and medical equipment, CVS may provide badistance with vision, hearing and nutrition.
A combined insurer and PBM are also likely to be in a better position to negotiate lower drug prices, and the provision could boost sales for CVS's direct sales retail business.
The company expects to invest billions of dollars in the next few years to add clinics and services, largely financed by diverting funds from other planned investments.
That could eventually reduce costs substantially, with clinics serving as an alternative to visits to the emergency rooms of a more expensive hospital.
Meanwhile, greater collaboration between Aetna's insurance business and CVS division PBM could boost drug costs by adding clients and increasing leverage of PBM with the drug manufacturers.
Independent PBMs have long been criticized for potential conflicts of interest with clients of insurance companies, as they could potentially maintain the cost savings of drug negotiations instead of pbading them on to patients.
Meanwhile, health insurers have tried to reduce costs amid the high price rises of prescription drugs and the requirements to care for even the sickest patients under the Affordable Care Act.
Aetna's large corporate clients are taking a wait-and-see attitude regarding the impact on costs, experts say.
Analysts have said that the CVS-Aetna agreement could trigger other mega-mergers in the health sector, as rivals rush to emulate the strategy.
] It could stimulate a merger between Walgreens Boots Alliance Inc ( WBA.O ) and Humana Inc ( HUM.N ), or between Humana and Wal-Mart Stores Inc ( WMT .N ]), Ana Gupte, an badyst at Leerink Partners, recently said.
Although the planned merger of CVS and Aetna does not directly consolidate the pharmaceutical or health insurance industries, the US Department of Justice. UU He has been closely examining so-called vertical mergers, where companies are not direct competitors.
Last month, the Department of Justice sued to block AT & T Inc ( TN ) planned $ 85.4 billion merger with Time Warner Inc ( TWX.N ), saying the integration of a content producer with a distributor could reduce the consumer's choice.
The CVS-Aetna agreement could attract similar scrutiny if regulators feared it might prevent Aetna customers from frequenting other pharmacies or contracting with other PBMs, several investors said, asking not to be named because they were not authorized to speak with the press.
But four antitrust experts said there is little doubt that the agreement will be approved, although it may need to meet the conditions to convince the antitrust authorities to sign.
It is not clear if it would be evaluated by the US Federal Trade Commission. UU Or the Department of Justice, but that decision could be made based on which agency is least busy, said Matthew Cantor of the law firm Constantine Cannon.
"(The companies) want the FTC to get it, the reason why the FTC is better at this moment is that the Justice Department has just broken with decades of precedent on how to deal with vertical mergers," Cantor said. , referring to the decision to reject corrective actions and file a lawsuit to stop AT & T Inc ( TN ) from buying Time Warner Inc ( TWX.N ).
Barclays and Goldman Sachs served as financial advisers to CVS, and Centerview Partners also provided financial advice to the CVS board of directors. Shearman & Sterling LLP, Dechert LLP and McDermott Will & Emery LLP were legal advisors to CVS.
Lazard Ltd and Allen & Company LLC were financial advisers to Aetna and Evercore served as independent financial advisor to Aetna's board of directors. Davis Polk & Wardwell LLP was a legal advisor to Aetna.
Information from Carl O & # 39; Donnell and Carl Humer in New York; Additional reporting by Greg Roumeliotis in New York and Diane Bartz in Washington; Editing by Meredith Mazzilli and Lisa Shumaker