What would acquiring Aetna mean for CVS retail?
CVS’s potential blockbuster takeover of Aetna is being seen by many as a necessary guard against Amazon.com’s speculated entry into pharmacy. Some see ways Aetna could become a major traffic driver for CVS’s 9,700 drug stores.
With discounts and other incentives, Aetna members could be incentivized to fill their prescriptions at CVS’s pharmacies, as well as to visit in-store Minute Clinics. Pharmacy traffic typically brings with it sales of health and beauty care, grocery and other items at the front of CVS’s stores.
A merger of the second largest pharmacy retailer and pharmacy benefit manager (PBM) with the third largest health insurer should also provide greater leverage in negotiating drug prices to help cover those discounts and shore up CVS’s bottom line.
Still, news of the potential $66 billion deal, first reported by The Wall Street Journal, was nearly dwarfed by a report on Friday that Amazon had received approval for wholesale pharmacy licenses in nearly a dozen states. Although Amazon hasn’t commented on whether the company is entering the pharmacy business, CVS’s move is seen as a response to the threat.
“A potential combination would diversify CVS profit streams ahead of an Amazon entry and set the stage for a new healthcare/retail delivery model,” Morgan Stanley wrote in a note Friday.
CVS’s previous acquisitions of Caremark Rx and Omnicare as well as its expansion of in-store clinics and long-term care already shrank retail to 46 percent of the company’s sales, as of last year. Merging a traditional insurer with a retailer would be a first and could test whether retail might offer a solution to lowering the nation’s healthcare costs. Insights from CVS’s retail clinics and pharmacies could also help Aetna develop more valuable packages.
Adam Fein, president of Pembroke Consulting, told The Washington Post, “Depending on how it’s structured, this could potentially be of great benefit to consumers, because there will be an opportunity to offer more efficient and more effective health insurance plans.”
If completed, the deal is expected to drive M&A activity across the healthcare space.
- CVS Makes Blockbuster Aetna Bid – The Wall Street Journal
- The Real Reason CVS Wants to Buy Aetna? Amazon – The Wall Street Journal
- CVS-Aetna? Expect more strange bedfellows as competition from Amazon grows – Los Angeles Times
- With Aetna Deal, Is CVS Turning Its Back on Retail? – TheStreet.com
- CVS is plotting a $66 billion takeover — and it has a lot to do with fending off Amazon – Business Insider
- Why CVS Health would want to buy Aetna – The Washington Post
- Amazon gains wholesale pharmacy licenses in multiple states – St. Louis Today
DISCUSSION QUESTIONS: What would a merger with Aetna mean for CVS’s retail competitiveness vis-à-vis Amazon? What potential business benefits do you see in such a health care/retail combination?