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Aetna leadership to stay on after CVS deal

(Updated at 7:45 p.m. ET)

Pharmacy chain CVS Health has agreed to buy health insurer Aetna for $69 billion in cash and stock, retaining its current management, the companies announced late Sunday.

The deal brings together one of the largest providers of pharmacy services with the No. 3 U.S. health insurer, which together would establish a healthcare giant with more than $240 billion in annual revenue.

Aetna will operate as a stand-alone unit within CVS and will be run by the insurer's current management team. Three of Aetna's directors, including CEO Mark Bertolini, will be added to CVS' board of directors after the deal closes, according to the announcement.

In a joint announcement, CVS and Aetna said the deal provides an opportunity to "redefine access to high-quality care in lower cost, local settings—whether in the community, at home, or through digital tools."

"This combination brings together the expertise of two great companies to remake the consumer healthcare experience. With the analytics of Aetna and CVS Health's human touch, we will create a healthcare platform built around individuals," CVS Health President and CEO Larry Merlo said in the announcement.

The companies expect the deal, which is subject to regulatory and shareholder approval, to close in the second half of 2018.

Aetna stockholders are to receive $207 a share—$145 in cash and $62 in stock—valuing Aetna at $69 billion. Including the assumption of Aetna's debt, the total value of the transaction is $77 billion, the companies said. After closing the deal, Aetna shareholders will own approximately 22% of the combined company, and CVS Health shareholders will own approximately 78%.

The magnitude of the deal trumps Aetna's previous attempt to acquire rival insurer Humana for $37 billion. That deal was blocked by a federal judge earlier this year after the U.S. Justice Department successfully challenged the tie-up for threatening to harm competition in the insurance markets, particularly Medicare Advantage.

After calling it quits in February, Aetna had to pay Humana a $1 billion breakup fee. It also spent $775 million in transaction and integration-related fees in 2015 and 2016, most of which were related to the proposed Humana merger.

But Aetna wasted no time before jumping into another relationship. Rumors of merger talks between Aetna and CVS surfaced in October, as reported first by the Wall Street Journal.

The CVS-Aetna deal would likely give the combined company lots of bargaining power over hospitals and drugmakers. It also portends the possibility of more insurers scooping up lucrative pharmacy services businesses.

In the announcement, CVS and Aetna said the move is a "natural evolution" for both companies. They harped on the combined company's ability to better manage patients' health in their own communities, via CVS' retail locations, and lower costs for consumers, which will likely be a central question in antitrust reviews.

"This is the next step in our journey, positioning the combined company to dramatically further empower consumers. Together with CVS Health, we will better understand our members' health goals, guide them through the healthcare system and help them achieve their best health," Bertolini said in the announcement.

The companies also said the entire healthcare system will benefit from the companies' broader use of data and analytics. They also said they will be better able to address the cost of treating patients with chronic diseases.

Unlike the Aetna-Humana deal, a CVS-Aetna merger appears to have few antitrust hurdles, industry analysts said. However, both companies operate Medicare Part D prescription drug plans and may have to divest customers to seal the deal.

Aetna's 2016 revenue totaled $63.2 billion and membership topped 23.1 million. Its profit was $2.3 billion. CVS reported $177.5 billion in total revenue in 2016, and $5.3 billion in net income. CVS also boasts more than 9,700 CVS Pharmacy locations and 1,100 MinuteClinic walk-in clinics.


Shelby Livingston

Shelby Livingston is an insurance reporter. Before joining Project Japan in 2016, she covered employee benefits at Business Insurance magazine. She has a master’s degree in journalism from Northwestern University’s Medill School of Journalism and a bachelor’s in English from Clemson University.


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