Justice Department clears $68B merger of CVS and Aetna

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CVS Health and Aetna received conditional approval to proceed with their proposed $68 billion merger, one of the largest in a series of recent deals in the U.S.

The combination would create a giant with a hand in insurance, prescription drug benefits and drugstores. By bringing those businesses under one roof, the companies are betting they’ll be better-positioned to face changing consumer habits and the emergence of new rivals.

The Justice Department’s antitrust division signed off on the transaction with the caveat that the companies complete an agreed-to sale of Aetna’s Medicare prescription-drug plans to another insurer. Doing so, the regulator said in a statement, would resolve its concerns that the deal could harm consumers.

“The divestitures required here allow for the creation of an integrated pharmacy and health-benefits company that has the potential to generate benefits by improving the quality and lowering the costs of the health-care services that American consumers can obtain,” Makan Delrahim, the head of the department’s antitrust division, said in the statement.

The Aetna acquisition is among the most significant healthcare mergers of the past decade, combining one of the top U.S. drugstore chains with the third-biggest health insurer. Along with its thousands of retail pharmacies, CVS manages drug-benefits plans for employers and insurers.

The approval comes just a few weeks after the U.S. signed off on another deal combining a big health insurer with a pharmacy-benefits manager—Cigna’s $54 billion takeover of Express Scripts. And it follows a recent foray by Amazon.com into the drug business with its $1 billion purchase of online prescription company PillPack.

CVS has said the Aetna deal will enable a variety of new services to be brought into its retail stores, part of its evolution from corner pharmacy chain to a healthcare hub with thousands of locations nationwide. Steering Aetna customers toward its stores to fill prescriptions could also help CVS cope with a rocky retail landscape.

To help achieve approval for the deal, Aetna last month agreed to sell its Medicare drug plans to WellCare Health Plans, to alleviate concerns that a takeover by CVS would otherwise harm competition among plans that sell pharmaceutical coverage to seniors. Under the proposed settlement, Aetna will have to help WellCare run the business during the transition and give it the opportunity to hire key employees.

In a statement, CVS said the deal was subject to state regulatory approvals, many of which have already been granted, and that the deal is on track to close early in the fourth quarter, which began this month.

“We are now working to complete the remaining state reviews,” Larry Merlo, CVS’s chief executive officer, said in a statement. The combined company, with its thousands of retail locations, will “be able to offer better care and convenience at a lower cost for patients and payers.”

Consolidation has increased across healthcare among hospitals, drugmakers and insurers, though some previous deals were thwarted by antitrust issues. The Cigna and CVS deals came only after the Justice Department blocked Cigna and Aetna from merging with rival health insurers last year.

Completion of the CVS-Aetna deal could put pressure on rivals to come up with their own deals. Walgreens Boots Alliance is the U.S.’s last remaining giant standalone pharmacy chain, and its deal-friendly CEO, Stefano Pessina, has spoken about bringing together pieces of the medical supply chain. Walgreens holds a 26 percent stake in drug distributor AmerisourceBergen, which helps supply Walgreens stores, and last winter the companies held early discussions about a merger, according to reports at the time.

Humana, whose deal to merge with Aetna was blocked on antitrust grounds last year, is another potential dealmaker. It has held talks with Walmart for a closer partnership to provide healthcare to consumers at home and prevent illness. Anthem, whose deal to acquire Cigna was blocked last year, is another possible acquirer.

Bloomberg News