CVS Announces Surprise Acquisition Of Aetna

When the going gets tough — say, because Amazon is about to take on the pharmacy industry with its vertical-slaying eCommerce retail machine — the tough get going.

Or, at least they go shopping and decide to make a big, splashy and surprising acquisition.

CVS Health Corp. has officially made a move to buy the No. 3 U.S. health insurer Aetna Inc. at a price of over $200 per share. That figure clocks in at a whopping $66 billion, people familiar with the matter said on Thursday.

If approved, the acquisition would merge the largest pharmacy benefits manager and operator in the nation with one of the country’s longest-living health insurance firms.

The market popped Aetna’s shares to 11 percent, while docking CVS’ shares 3 percent when the news broke on Thursday (October 26).

Pharmacy benefit managers (PBMs) such as CVS negotiate drug benefits for health insurance plans and employers. As pressure has mounted over recent years to curb the ever-mounting costs of pharmaceuticals, those negotiations have gotten more aggressive. CVS has successfully extracted discounts and after-market rebates from drug makers in exchange for including medications in PBM formularies with low co-payments. The tie-in would give CVS more leverage with drug companies, which might attract the interest of anti-trust authorities.

It also adds a wrinkle to the news that Amazon is preparing to enter the drug prescription market, using its vast eCommerce retail platform to disrupt the power of the physical pharmacy brand.

The talks, which reports indicate have been ongoing for some time, have been primarily centered between CVS CEO Larry Merlo and Aetna CEO Mark Bertolini. Their main point was to make the idea of a merger a live, viable possibility for both investor sets.

CVS and Aetna started discussing terms only recently, and a formal deal is not expected for a few weeks, one of the sources added.

That, however, might change now that word of the deal is circulating in media sources.

What remains to be seen is what the breakdown of the bid will look like in terms of cash vs. stock.

So far, neither firm has offered any official word.