CVS Deal For Aetna Reaches Endgame -- WSJ

By Dana Mattioli and Anna Wilde Mathews Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 1, 2017).

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CVS Health Corp. is moving closer to a deal to buy Aetna Inc. for more than $66 billion in cash and stock. The deal, which could be announced by Monday, would create a health-care behemoth selling everything from drugs to insurance.

The companies are in advanced stages of negotiating a deal, according to people familiar with the matter. It would likely be valued at between $200 and $205 per Aetna share and consist mainly of cash, some of the people said.

The cash-stock mix has yet to be finalized, and Aetna has been pushing for more cash, they added.

It is still possible the timing could slip or that the companies will fail to reach a deal.

Aetna shares edged up to $180.18 on Thursday. The stock was trading at about $160 when The Wall Street Journal reported on the possibility of a deal with CVS on Oct. 26; on that basis, a price of over $200 a share would represent a premium of more than 25%.

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It would be the biggest merger deal signed this year and the largest since AT&T Inc. agreed to buy Time Warner Inc. for about $85 billion in October 2016.

Shares of Woonsocket, R.I.-based CVS, which sank in the days after news of the possible deal surfaced, have since recouped the loss and then some. The stock rose 4.4% to $76.60 on Thursday, putting the company's market value at about $77.6 billion.

CVS comprises a chain of nearly 10,000 drugstores and a big pharmacy-benefits manager, or PBM, that selects which drugs are covered for patients and negotiates discounts with drugmakers.

Aetna, based in Hartford, Conn., is a major health insurer. A deal for the company, culminating months of talks, would lock in a huge number of members for CVS's PBM as well as potential customers for its drugstores. That could bolster its leverage in negotiations with drugmakers.

The tie-up would also further efforts by CVS to move deeper into health care and enable it to pitch a unified, seamless benefits offering to clients such as big employers.

Moves that Amazon.com Inc. have made to potentially enter the pharmacy business stoked CVS's interest in diversifying through a deal with an insurer, people familiar with the matter have said.

CVS has been wading ever deeper into health care, paring its reliance on retail sales of cosmetics, grocery items and other merchandise. Retail sales at CVS amounted to 46% of its total revenue in 2016, down from 52% in 2013.

In buying Aetna, CVS would move 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.

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

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

The Justice Department in recent years has challenged health-insurance mergers while the Federal Trade Commission has objected to several hospital combinations.

The Justice Department's recent move to block the pending AT&T-Time Warner deal has stirred investor concern about the fate of a CVS-Aetna merger proposal. Indeed, the difference of $20 or more between the price per share that CVS is expected to pay and where Aetna is currently trading is likely a sign that investors are mindful of the possibility that an agreed deal between the companies won't close.

A deal with CVS would mean a major change in direction for Aetna, coming after the company's 2015 plan to buy rival insurer Humana Inc. for $34 billion fell apart after a successful antitrust challenge by the Justice Department. Though Aetna has said it retains strong pathways to growth, including potential deals and expansion of its Medicare and Medicaid businesses, none appears to hold the potential that the company highlighted during its effort to combine with Humana.

Sharon Terlep contributed to this article

Write to Dana Mattioli at dana.mattioli@wsj.com and Anna Wilde Mathews at anna.mathews@wsj.com

(END) Dow Jones Newswires

December 01, 2017 02:47 ET (07:47 GMT)