NEW YORK • CVS Health Corp will buy Aetna Inc for about US$67.5 billion (S$91 billion), creating a healthcare giant that will have a hand in everything from insurance to the corner pharmacy.
CVS will pay US$207 a share for Aetna, with US$145 a share in cash and the rest in stock, the companies said on Sunday. That is a 29 per cent premium to Aetna's share price on Oct 25, the day before the companies were reported to be in talks.
The deal is among the biggest healthcare mergers of the past decade, combining the largest American pharmacy chain with the third-biggest health insurer.
CVS also manages drug-benefits plans for employers and insurers, a business that could help steer some of Aetna's 22 million customers into CVS pharmacies when they fill a prescription. The deal will give Aetna's insurance plans a closer on-the-ground tie to where customers get care.
Including CVS' assumption of Aetna's debt, the deal will be valued at US$78 billion. It is expected to close in the second half of next year, the companies said.
In a joint interview, CVS chief executive Larry Merlo and Aetna CEO Mark Bertolini said combining the companies would help CVS expand a variety of retail medical services, from vision care to nutrition advice to audiology, making basic care more convenient and less costly for consumers. Aetna will be operated as a separate business unit, and any new services will be designed to appeal broadly to customers of other insurance companies as well, the executives said.
The immediate financial benefits of the deal are projected to be relatively modest. The companies said they expect US$750 million in synergies, and profit improvements in the low-to-mid single digits the second full year after the merger is completed. The companies are betting on longer-term profit from reshaping how their customers get care, by creating what the executives are calling "10,000 new front doors for the healthcare system" at CVS' stores and clinics.
"Think of these stores as a hub of a new way of accessing healthcare services across America," Mr Merlo said in the joint interview. "We're bringing healthcare to where people live and work."
The deal will be financed with a mix of cash and debt. Barclays, Goldman Sachs Group and Bank of America Corp have committed to provide US$49 billion of financing, the companies said.
CVS and Aetna are joining hands as the health sector is looking over the horizon at Amazon.com, and how the Internet retailer could shake up the business of buying, distributing, and selling drugs and medical products if it gets into healthcare. The retail industry has already been battered by the online giant. Amazon has not revealed its plans.
"One of the problems with the healthcare system is it's so fragmented and there's so little coordination," said Mr Steve Kraus, who invests in health firms at Bessemer Venture Partners. "A better vertically integrated, less-siloed system is a good thing in my mind."
Mr Merlo disputed the idea that the deal was a defensive move against Amazon's possible entry into the pharmacy business. "This transaction is really about growth, it is about expansion, it is not about contraction," Mr Merlo said.
The deal could also set off a new round of takeovers as CVS' and Aetna's competitors look at the reshaped landscape. Last Thursday, Express Scripts Holding's top executive said the company would be open to a deal at the right price, though it was not actively looking for one.
"We don't need to sell to be very successful in the future, but we are always open to others who may all of a sudden conclude they want what we have," Express Scripts' CEO Tim Wentworth said in an interview. He also mentioned the possibility of partnering with Amazon on an online-pharmacy arrangement.