Are CVS Health and Aetna Ready for a Deal?
CVS bids for Aetna
According to a recent report by the Wall Street Journal, America’s largest pharmacy chain, CVS Health (CVS), is in talks to buy Aetna (AET), the country’s third-largest insurance company, for more than $66 billion. According to sources, CVS has agreed to pay $200 per share for Aetna. The two companies have apparently been in talks for the last six months.
If the deal happens, it would be the biggest deal of the year and also the largest in CVS’s history. To date, CVS’s most significant purchase was of Caremark in 2007 for $21 billion.
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How did the market react?
Aetna stock soared nearly 12% on Thursday, October 26, 2017, after the news. However, on Friday, the stock fell ~3%.
CVS stock fell ~3% on Thursday and another 5.9% on Friday. While a Jefferies analyst called the deal “insane” on CVS’s side, other analysts believe it could have several long-term positives. We’ll look at those in Parts 2 and 3 of this series.
CVS stock has fallen 12.6% so far this year. Some of the fall could be attributed to the ongoing pessimism in the retail pharmacy space due to the looming competitive threat of Amazon’s (AMZN) possible entry into the retail pharmacy market. The online juggernaut is believed to have obtained pharmacy licenses in some states.
RBC Capital Markets analyst George Hill pointed out that “Amazon’s ability to impact the business over the near to mid term is usually low, although the ability to impact the stock is usually high.