(Reuters) – U.S. pharmacy operator CVS Well being Corp has made a proposal to amass No. three U.S. well being insurer Aetna Inc for greater than $200 per share, or over $66 billion, folks acquainted with the matter stated on Thursday.
A deal would merge one of many nation’s largest pharmacy advantages managers and pharmacy operators with considered one of its oldest well being insurers, whose far-reaching enterprise ranges from employer healthcare to authorities plans nationwide.
Aetna shares rose greater than 11 p.c, or $18.48, to $178.60, whereas CVS shares fell three p.c, or $2.22, to $73.31, after the Wall Avenue Journal first reported on the talks earlier on Thursday.
Healthcare consolidation has been a well-liked route for insurers and pharmacies, underneath stress from the federal government and enormous companies to decrease hovering medical prices.
Pharmacy profit managers (PBMs) equivalent to CVS negotiate drug advantages for medical insurance plans and employers, and have in recent times taken an more and more aggressive stance in value negotiations with drugmakers.
They usually extract reductions and after-market rebates from drugmakers in alternate for together with their medicines in PBM formularies with low co-payments.
A tie-up with Aetna may give CVS extra leverage in its value negotiations with drug makers. However it might additionally topic it to extra antitrust scrutiny.
The deal may additionally assist counter stress on CVS’s inventory following hypothesis that Amazon.com Inc is making ready to enter the drug prescription market, utilizing its huge e-commerce platform to take market share from conventional pharmacies.
CVS made the provide earlier this month, though the 2 corporations have been in discussions a couple of potential deal for a number of months, the sources stated.
These talks had been carried out primarily between CVS Chief Govt Officer Larry Merlo and Aetna CEO Mark Bertolini, and had been geared toward making executives comfy with the thought of a merger, the sources stated.
CVS and Aetna began discussing phrases solely not too long ago, and a deal just isn’t anticipated for just a few weeks, one of many sources added, cautioning that the tempo of the talks may speed up given the publication of the negotiations.
The sources didn’t specify how a lot of CVS’ bid is money versus inventory, however given CVS’s and Aetna’s market capitalizations of $77 billion and $54 billion, respectively, a considerable inventory element is probably going in any deal.
Aetna and CVS declined to remark.
Aetna earlier this yr closed the door on a cope with rival insurer Humana Inc after antitrust regulators stated that mixture and a rival deal between Anthem Inc and Cigna Corp had been anti-competitive.
UNCERTAIN TIMES AHEAD
The deal comes after years of main adjustments to the U.S. medical insurance trade underneath former President Barack Obama, whose 2010 Reasonably priced Care Act created new floor guidelines for a way insurers function and expanded insurance coverage to 20 million extra People.
Republican President Donald Trump has promised to show again lots of the Reasonably priced Care Act’s sides, however Congress has not been capable of agree on a repeal or a substitute. The shortage of progress – in addition to Trump’s govt order to carry down healthcare prices – has created uncertainty for insurers as they head into 2018.
After the cope with Humana fell aside, Bertolini has stated that he didn’t imagine massive offers had been potential within the insurance coverage trade.
However analysts have speculated a couple of tighter partnership between Aetna and CVS since early within the yr. CVS and Aetna have a long-term contract during which CVS has offered pharmacy advantages for Aetna prospects.
“Aetna actually makes the most effective sense” stated Jeff Jonas, a portfolio supervisor at Gabelli Funds. “It’s their largest consumer on the PBM facet. They actually have comparable views as to the place healthcare ought to go, which is to the retail setting.”
Jonas, who owns each Aetna and CVS shares, famous the 2 corporations had been already speaking about working collectively on Minute Clinic, on dwelling infusion and different companies.
“To go from that to a full merger is a giant step but it surely’s not enormous,” he stated.
Final week No. 2 insurer Anthem Inc. introduced plans to handle its personal pharmacy advantages with the assistance of CVS, a transfer that may give it a set-up just like UnitedHealth Group Inc. and its Optum unit. Insurers need extra management over the pharmaceutical element of care as they implement pricing schemes with medical doctors and hospitals which are based mostly on well being outcomes, not simply procedures.
Additionally they need to work on driving down prices, and as a pharmacy profit supervisor, would negotiate instantly with drugmakers.
Reporting by Carl O’Donnell, Greg Roumeliotis, Caroline Humer and Invoice Berkrot in New York; Modifying by Dan Grebler and Diane Craft