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Will Aetna Be Acquired by CVS Health to Rest Speculations?


Rumors are rife that CVS Health Corp. CVS is in advanced stages to acquire the health insurer Aetna Inc. AET for $66 billion.

Pharmacy benefit managers work primarily for insurers and employers and seek to negotiate the drug prices with pharmaceutical companies and drugstores to reduce the pocket-pinch for consumers. This in turn lowers the medical cost for insurers.

This news drove the shares of Aetna to a new 52-week high of $192.37. The stock has surged 45% year to date, in line with the industry's growth.

We believe, this deal has a greater probability of getting a nod from the regulators since it will be a vertical integration as compared to the horizontal combination (which was feared to create a monopoly in the market and stifle healthy competition among rivals, if passed through) of Aetna-Humana deal, which was blocked earlier in the year.

The deal seems a good complement, given that it would lead to a deadly combination of Aetna’s strong position and its expertise in the health benefits space with CVS’ deep knowledge of the consumers and its leading position in the pharmacy benefits market.

This combined entity would create a mammoth healthcare set-up with wide-ranging operations from sale of drug to insurance cover.

What’s in the Offing for Aetna?

The deal will add to Aetna’s scale and size and equip it to negotiate with drug manufacturers and pharmacies better. This would as a result lower the cost of acquiring prescription drugs, enabling the company to share the savings in with its consumers by way of more customer-friendly insurance plans like enhanced frills or lower premium, thus ultimately leading to market-share gain.

Consolidation in the Health Care Space

Mergers and acquisition (both horizontal and vertical) in the space is rife, given the necessity of the players to gain in scale and size to weather the changes taking place within the industry. Such deals (pharmacy benefit managers with insurance companies) are the need of the hour at the backdrop of a changing industry, which is rapidly seeing a rise in consumerism.

Also, the increased incidence of specialty drugs that are paid through medical and not pharmacy benefit organizations, necessitates the coming together of medical and pharmacy benefit companies.

The takeover of Catamaran by UnitedHealth Group Inc. UNH also falls under this category.

Zacks Rank and Stocks to Consider

Aetna carries a Zacks Rank #3 (Hold). A better-ranked stocks in the same space is Triple-S Management Corp. GTS carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Triple-S Management pulled off positive surprises in two of the trailing four quarters with an average beat of 74%.

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