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Aetna, CVS Health Ink a Merger Agreement Worth $69 Billion


Aetna Inc. AET will soon be acquired by CVS Health Corp. CVS, per a definitive merger agreement.

This mega-merger between a pharmacy health care provider, CVS and an insurance company, Aetna, is expected to close in the second half of 2018. Valued at nearly $69 billion, the deal is subject to approval by shareholders of both the companies, regulatory approvals and other customary closing conditions.

Notably, the merger-agreement has a greater probability of getting an approval 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) of Aetna-Humana Inc. (HUM) deal, which was inked earlier this year.

Additionally, the deal seems to be encouraging as it would result in a deadly combination of Aetna’s strong position and its expertise in the health benefits space coupled with CVS’ deep knowledge of the consumers and its leading position in the pharmacy benefits market.

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

What’s in Store for Aetna?

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

So far this year, the stock has surged 45%, outperforming the industry’s growth of 42%.

Gain for Shareholders

Aetna shareholders will receive attractive value from the transaction, including $145 per share in cash and 0.8378 shares of CVS Health common stock. Also, approximately 22% of the combined company will be owned by them. Consequently, these shareholders will be able to be a part of the success and high growth potential of the combined company in the near term.

Shareholders will benefit from deal which should result in enhanced competitive positioning, low- to mid-single digit accretion in 2019 including the ability to deliver $750 million in near-term synergies.

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 back in 2015 was in line with this trend.

Zacks Rank and Stocks to Consider

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