CVS Suspends Buybacks While Aetna Megadeal Gets Antitrust Review

(Bloomberg) -- CVS Health Corp. said it's making “good progress” on getting regulatory approval for its $68 billion deal to buy health insurer Aetna Inc. -- one of two megamergers in the health-care industry that are under antitrust scrutiny.

In the meantime, the drug retail giant has suspended its share buyback plan. The company, one of the U.S.'s leading providers of drug-benefits for employers and health plans, also signaled that some employers may be waiting to see how the sector will be reshaped before making major decisions on contracts that typically last three years.

“There is a bit of a wait and see approach as to how does the landscape shake out,” CVS Chief Executive Officer Larry Merlo told analysts on the company's earnings conference call Wednesday.

The shares fell 3.4 percent to $65.72 at 12:04 p.m. Pharmacy-benefit rival Express Scripts Holding Co., which is being bought by Cigna Corp., also fell, by 1.1 percent, while Walgreens Boots Alliance Inc. declined 2.8 percent.

‘Moderately Lower'

Opportunities for potential new contracts -- so-called requests for proposal -- are “moderately lower” than previous years, but it's “difficult to say” whether M&A or other factors are driving the trend, CVS spokeswoman Carolyn Castel said in an email.

“That said, the selling season is still very active,” she added.

The CVS-Aetna and Cigna-Express Scripts deals are both so-called vertical transactions that combine companies operating in different parts of the same sector: health insurance and pharmacy benefit management. The two deals are being reviewed by the Justice Department.

CVS said Wednesday its merger was moving ahead well.

“We are moving forward on both the regulatory and integration planning fronts in support of a close in the second half of this year and a smooth, efficient integration of operations,” CEO Merlo said in a statement earlier in the day.

CVS's proposed takeover of Aetna would bring together around 10,000 CVS stores and the health insurer's 22 million customers. A central plank of the deal is transforming the stores into health hubs where consumers can get care, pick up their drugs, buy some cosmetics, and stay out of the hospital. In a sign of its ambition, last month, CVS hired a senior executive from a startup that specializes in primary-care clinics to oversee expanded health-care services across the company.

Concerns that Amazon.com Inc. may start directly competing with CVS by selling prescription drugs have receded recently, following a CNBC report in April that the internet retailer had shelved plans too sell drugs to hospitals and other businesses.

On Wednesday, CVS also posted earnings of $1.48 a share, excluding some items, topping the $1.41 average of 20 analysts' predictions compiled by Bloomberg. Revenue rose 2.6 percent to $45.7 billion, in line with projections.

Aetna, which reported its own results on Tuesday, had a good quarter, like the rest of the health-insurance industry.

“Aetna is firing on all cylinders, validating that CVS would gain pristine health insurance assets should the deal go through,” wrote Jason McGorman, an analyst at Bloomberg Intelligence.

To contact the reporter on this story: Robert Langreth in New York at rlangreth@bloomberg.net.

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Cecile Daurat, Timothy Annett

©2018 Bloomberg L.P.