CVS Health Is in Talks to Buy Aetna -- 5th Update

CVS Health Corp. is in talks to buy Aetna Inc. for more than $66 billion as the drugstore giant scrambles to fortify itself against looming competition from Amazon.com Inc. amid a continuing reordering of the health-care industry.

CVS has made a proposal to buy the health insurer for more than $200 per share, people familiar with the matter said. The talks may not lead to a deal, but in a sign of their seriousness, the companies' respective chief executives -- Larry Merlo at CVS and Mark Bertolini at Aetna -- have met multiple times over a period of roughly six months, one of the people said.

With Aetna, CVS could lock in a huge number of members for its pharmacy-benefit management, or PBM, arm, as well as customers for its drugstores. That could bolster its leverage in negotiations with drugmakers, while its oversight of health insurance could improve its ability to strike new deals that tie drug prices to patient outcomes.

A deal for Aetna would also advance efforts CVS has been making to move further into health care, with services including urgent-care clinics, and could enable it to pitch a unified, seamless benefits offering to clients such as big employers. The combined behemoth would also have a large and diversified store of health data, an important asset in today's competitive environment.

Expectations that Amazon will enter the pharmacy business helped spur CVS's move on Aetna, according to another person familiar with the matter. An acquisition of a major insurer was among roughly a dozen strategies CVS management recently presented to directors, the person said.

The urgency of the threat from Amazon was underscored Thursday when it surfaced that the online juggernaut received approval for wholesale pharmacy licenses in several states.

Shares of CVS and other pharmacy chains tumbled after the St. Louis Post-Dispatch reported on the approvals. CVS stock had been down by about 5% before it rallied when The Wall Street Journal reported on a possible deal with Aetna. The shares closed at $73.31, down 2.9%.

Shares of Aetna, meanwhile, shot up about 12% on the Journal's report to close at $178.60. That gives the Hartford, Conn., company a market value of nearly $60 billion. CVS's is about $75 billion.

Woonsocket, R.I.-based CVS and its rivals were already under pressure to devise a counter attack should Amazon enter their turf. The company's stock, along with those of its rivals, took a hit after Amazon said it would acquire Whole Foods Market, a move that came amid reports the internet company was considering getting into the pharmacy business.

CVS felt further compelled to make a dramatic move after federal antitrust regulators recently rejected rival Walgreens Boots Alliance Inc.'s proposed acquisition of Rite Aid Corp., a person familiar with the matter said. That solidified the view that the solution to intensifying competition must come from beyond traditional channels, this person said.

CVS and Walgreens have been wading ever deeper into health care as retail sales of cosmetics, grocery items and other merchandise as a share of their overall revenue shrinks. For CVS, retail sales amounted to 46% of total revenue in 2016, down from 52% in 2013. For Walgreens, that number fell to 33% in the U.S. last year, from 37% in 2013.

Last year, CVS reported $120 billion in revenue from its pharmacy-services segment, and $81 billion from retail. Those figures include $23.5 billion in sales that overlap when both units book revenue from a prescription. About 75% of CVS's retail revenue comes from prescription drugs.

Aetna and CVS had already been long-term partners, signing a contract in 2010 for CVS to provide pharmacy-benefit services to the insurer.

In buying Aetna, CVS would evolve more in the direction of UnitedHealth Group Inc., the parent of both the biggest U.S. health insurer and a health-services arm known as Optum, which includes a PBM and a growing number of clinics and physician practices.

But the deal also would set up a potentially challenging dynamic with Anthem Inc., another insurer that had its own blockbuster merger plan thwarted. Anthem recently announced it would set up its own PBM, to be serviced by CVS. That move is set to take place in 2020.

A deal with CVS would come after Aetna's 2015 plan to buy rival insurer Humana Inc. for $34 billion fell apart amid regulatory opposition.

A deal would mean a major change in direction for Aetna. Though the company has said it retains strong pathways to growth, including potential deals and expansion of its Medicare and Medicaid businesses, none appears to hold the turbocharged potential that it had highlighted during its effort to combine with Humana.

CVS, for its part, is already a major player in offering Medicare drug plans.

The deal almost surely would attract close scrutiny from U.S. antitrust enforcers who have expressed concern about health-care consolidation.

While the Justice Department in recent years has challenged health-insurance mergers, the Federal Trade Commission has objected to several hospital combinations. The FTC also forced Walgreens to scale back its planned takeover of Rite Aid. This year, Walgreens ended its agreement to buy all of Rite Aid for $9.4 billion. It is now seeking to buy about half the company's stores.

Many of the actions by the FTC have drawn support from Republican and Democratic commissioners.

The deals that have attracted the strongest objections, however, generally have been mergers of two traditional head-to-head competitors.

If a deal were to be struck, it would rank as the year's largest. Year to date, global M&A volume is down 8% at $2.6 trillion, according to Dealogic. Megamergers have been rare.

It would also be the largest in CVS's history. In its largest deal to date, CVS bought pharmacy-benefits manager Caremark for $21 billion in 2007.

Write to Dana Mattioli at dana.mattioli@wsj.com, Sharon Terlep at sharon.terlep@wsj.com and Anna Wilde Mathews at anna.mathews@wsj.com