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The CVS-Aetna merger: Under the shadow of Amazon? – CVS Health Corporation (NYSE: CVS)

News of the merger of the day is that CVS Health Corp. (NYSE: CVS) and Aetna, Inc. (NYSE: AET) will merge. Almost all discussions about the possible merger mention the possibility that Amazon (NASDAQ: AMZN) enters the pharmaceutical business.

What is happening here?

Medical care is moving into the information age. The health industry has been one of the real laggards of the information age. I still laugh when I see my doctor wandering around his office cradling a laptop on his arm. The vision that this person is so closely linked to an instrument of the information age remains, to me, an image of incongruity.

However, even the health industry is changing.

The key to the merger seems to be the vertical integration that will be achieved within the health industry that will create new points of sale that will make it easier and less expensive for people to get care.

As Reed Abelson and Katie Thomas explain in the New York Times,

"If the idea is successful, the transformation could give patients more options and better convenience." Patients would also benefit if the new company improved. the coordination of care, such as improving the transition from the hospital to the home, or managing chronic conditions such as diabetes. "

Sounds like the same kind of analysis that followed Amazon's acquisition of Whole Foods The problem?

Execution of the plan.

Anna Wilde Mathews and Sharon Terlep writing in the Wall Street Journal, cite Lawton Robert Burns, a professor at the Wharton School at the University of Pennsylvania "who has studied health care providers for a long time." Professor Burns says he is "skeptical because it is a big challenge" to redesign the patterns of care on a national scale. "It sounds good on paper, but this is so hard to fulfill."

The opportunity is there, but it presents a great challenge. Efficient execution is necessary to achieve the benefits of the opportunity.

However, this is happening around us. This movement is described by Jonathan Haskel and Stian Westlake in his new book "Capitalism without capital: the boom of the intangible economy".

The fact is that this new world is composed of intangibles, whether things can be combined or not flaky. Whether or not they can create synergies or produce "spills" that accumulate for others.

In addition, the integration of these intangibles takes time, its benefits will not be observed overnight. This is one of the reasons why it has taken so long for these combinations to take place. The integration of these different resources must be executed efficiently, and their successful organization is not always obvious.

That's one of the reasons why Charley Grant writes in the Wall Street Journal that "CVS-Aetna is more turtle than hare". CVS's share price declined almost 5 percent in the announcement of the agreement.

The reason, Mr. Grant writes, is that,

"CVS will see few short-term gains from the acquisition, which will close in the second half of next year." Management does not expect an increase in the earnings per share until two years after the deal is closed. "

But, Mr. Grant adds, "investors should not lose sight of the reasoning of the agreement" because the final result of the transaction is the "long-term remodeling of the business model instead of financial engineering."

That's why the name Amazon comes up. Ana Gupte, health analyst at Leerink, said "CVS needs to overcome … the threat of Amazon's entry into the pharmacy."

And then Ms. Gupte mentions Wal-Mart (NYSE: WMT) and what she's doing. Then, she mentions Walgreens (NASDAQ: WBA). And so on.

This treatment is not just about medical attention, it's about information technology. It is about 0s and 1s. It's about the next 10 years. It is about Artificial Intelligence. It's about robots. It's about cars without a driver. It's about the financial system.

As the Financial Times editorial writer Martin Wolf summarizes the world, the new book "Capitalism Without Capital" describes: "It is a world in which many of the old rules work poorly".

Corporations will have to reorganize. Conglomerates may emerge again, but they will be linked by what technology allows them to do. Government regulations will need to be reimagined. The investment will have to adapt to these new structures and combinations.

What the CVS-Aetna agreement can indicate is that the speed at which the new era is approaching is accelerating.

Disclosure: I do not have / have positions in any mentioned action, and there are no plans to start any positions within the next 72 hours.

I wrote this article myself, and expressed my own opinions. I am not receiving compensation for it (which is not from Seeking Alpha). I have no business relationship with any company whose actions are mentioned in this article.

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