Why Wall Street Is Skeptical of the CVS-Aetna Deal
The success of CVS Health Corp.’s $67.5 billion acquisition of health insurer Aetna Inc. rides on a bet on a complex and untested strategy, and some in Wall Street are questioning whether the companies can pull it off.
CVS plans to build mini health centers in some of its 9,700 stores, turning them into key locations where Aetna members — and customers of rival insurers — get low-level care for ailments and chronic diseases. Already, CVS has 1,100 MinuteClinics in its pharmacies, and is testing out hearing and vision offerings in a handful of locations.
Investors are also skeptical of the deal. The health insurer’s stock was trading at $180.11 as of 9:34 a.m. in New York on Tuesday. That’s 13 percent below CVS’s $207-a-share cash-and-stock offer.
Several Wall Street analysts like the concept, but some are wary about the outcome.
“The strategy seems logical, but we believe there will be considerable execution risk for the combined companies,” Steve Halper of Cantor Fitzgerald said in a Dec. 4 research note. “Given the prolonged regulatory process, we do not expect any changes (if any) in the competitive landscape until the 2020 coverage plan year.”
About 70 percent of the U.S. population lives within three miles of a CVS location, allowing the combined company to create an expanded menu of lower-cost, convenient patient care services, according to David Larsen, an analyst at Leerink Partners. Regulators and federal health officials “will see the value in such a transaction, and we believe the deal will be approved,” he wrote in a note to clients.
Michael Wiederhorn, an analyst at Oppenheimer, said the deal has a “risky integration process,” and Aetna shareholders should be paid more.
“It is more beneficial to CVS given the competitive pressures and need to take action,” he said in a research note. “Aetna was in the driver’s seat and should have received a higher premium.”