The healthcare space is consolidating with the latest development being the potential buyout of Aetna (AET – Free Report) by CVS Health Corp (CVS – Free Report). A drug chain and a pharmacy giant CVS has agreed to acquire the nation’s third-largest health insurer Aetna for $207 per share or $69 billion.
This would be the biggest deal of the year and the first tie-up of a retailer, an insurer and a pharmacy benefit manager in history. As such, the proposed deal would change the landscape of healthcare business as well as streamline and cut costs in the drug supply chain.
Inside The Deal
Under the terms of the deal, Aetna shareholders will receive $145.00 per share in cash and 0.8378 CVS Health shares for each Aetna share. Upon closure, Aetna shareholders will own approximately 22% of the combined company and CVS Health shareholders will own approximately 78%.
The merged company would create a one-stop shop for customers’ healthcare needs, ranging from employer healthcare and government plans to managing benefits and running drug stores. By owning Aetna, CVS will become the first triple healthcare player: a drugstore, a pharmacy benefit manager and now an insurer. It would be in a better position to negotiate discounts with drug manufacturers. This is because CVS is one of the key players in the pharmacy benefit management business in the United States and often negotiates drug benefits for insurance plans and employers.
Additionally, the combined company could pose a bigger threat to UnitedHealth Group Inc. (UNH – Free Report), the largest U.S. health insurer having its own pharmacy benefits unit. The move is also to stave off threats from Amazon.com Inc (AMZN – Free Report), which is making huge expansion in the world of pharmaceutical drugs and has already received pharmacy-wholesaler licenses in a dozen states.
The transaction would result in cost synergies of $750 million and low-to-mid single-digit accretion to earnings in the second full year after the transaction closes. It is expected to close in the second half of 2018 and is subject to approval from shareholders of both companies and anti-trust regulatory approvals. Including the assumption of Aetna’s debt, the total value of the transaction is $77 billion.
