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 By Carl O'Donnell and Greg Roumeliotis
(Reuters) - U.S. pharmacy operator CVS Health Corp has made an offer
to acquire No. 3 U.S. health insurer Aetna Inc for more than $200
per share, or over $66 billion, people familiar with the matter said
on Thursday.
A deal would merge one of the nation's largest pharmacy benefits
managers and pharmacy operators with one of its oldest health
insurers, whose far-reaching business ranges from employer
healthcare to government plans nationwide.
Aetna shares rose more than 11 percent, or $18.48, to $178.60, while
CVS shares fell 3 percent, or $2.22, to $73.31, after the Wall
Street Journal first reported on the talks earlier on Thursday.
Healthcare consolidation has been a popular route for insurers and
pharmacies, under pressure from the government and large
corporations to lower soaring medical costs.
Pharmacy benefit managers (PBMs) such as CVS negotiate drug benefits
for health insurance plans and employers, and have in recent years
taken an increasingly aggressive stance in price negotiations with
drugmakers.
They often extract discounts and after-market rebates from
drugmakers in exchange for including their medicines in PBM
formularies with low co-payments.
A tie-up with Aetna could give CVS more leverage in its price
negotiations with drug makers. But it would also subject it to more
antitrust scrutiny.
The deal could also help counter pressure on CVS's stock following
speculation that Amazon.com Inc is preparing to enter the drug
prescription market, using its vast e-commerce platform to take
market share from traditional pharmacies.
CVS made the offer earlier this month, although the two companies
have been in discussions about a potential deal for several months,
the sources said.
These talks were carried out primarily between CVS Chief Executive
Officer Larry Merlo and Aetna CEO Mark Bertolini, and were aimed at
making executives comfortable with the idea of a merger, the sources
said.
CVS and Aetna started discussing terms only recently, and a deal is
not expected for a few weeks, one of the sources added, cautioning
that the pace of the talks could accelerate given the publication of
the negotiations.
The sources did not specify how much of CVS' bid is cash versus
stock, but given CVS's and Aetna's market capitalizations of $77
billion and $54 billion, respectively, a substantial stock component
is likely in any deal.
Aetna and CVS declined to comment.
Aetna earlier this year closed the door on a deal with rival insurer
Humana Inc after antitrust regulators said that combination and a
rival deal between Anthem Inc and Cigna Corp were anti-competitive.
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UNCERTAIN TIMES AHEAD
The deal comes after years of major changes to the U.S. health
insurance industry under former President Barack Obama, whose 2010
Affordable Care Act created new ground rules for how insurers
operate and expanded insurance to 20 million more Americans.
Republican President Donald Trump has promised to turn back many of
the Affordable Care Act's facets, but Congress has not been able to
agree on a repeal or a replacement. The lack of progress - as well
as Trump's executive order to bring down healthcare costs - has
created uncertainty for insurers as they head into 2018.
After the deal with Humana fell apart, Bertolini has said that he
did not believe large deals were possible in the insurance industry.
But analysts have speculated about a tighter partnership between
Aetna and CVS since early in the year. CVS and Aetna have a
long-term contract in which CVS has provided pharmacy benefits for
Aetna customers.
"Aetna really makes the best sense" said Jeff Jonas, a portfolio
manager at Gabelli Funds. "It's their largest client on the PBM
side. They really have similar views as to where healthcare should
go, which is to the retail setting."
Jonas, who owns both Aetna and CVS shares, noted the two companies
were already talking about working together on Minute Clinic, on
home infusion and other services.
"To go from that to a full merger is a big step but it's not huge,"
he said.
Last week No. 2 insurer Anthem Inc. announced plans to manage its
own pharmacy benefits with the help of CVS, a move that would give
it a set-up similar to UnitedHealth Group Inc. and its Optum unit.
Insurers want more control over the pharmaceutical component of care
as they implement pricing schemes with doctors and hospitals that
are based on health outcomes, not just procedures.
They also want to work on driving down costs, and as a pharmacy
benefit manager, would negotiate directly with drugmakers.
(Reporting by Carl O'Donnell, Greg Roumeliotis, Caroline Humer and
Bill Berkrot in New York; Editing by Dan Grebler and Diane Craft)
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