CVS and Aetna Combine

The proposed combination of Aetna and CVS is significant, and puzzling, enough to merit a full commentary.  The transaction has been expected for months, the haggling over details resulted in a $69 billion cash and stock purchase price, which will weigh CVS down with more debt.   (CVS Announcement)   Aetna shareholders should be happy, they are getting a significant premium for a company that spent a year in M & A regulatory purgatory trying to buy Humana, and really hasn’t distinguished itself in the health insurance market.  But it may take them a while to get that money, I anticipate that regulators will take a long look at another mega-merger that creates a mammoth company without any clear benefits for consumers.  There is no clear financial or strategic rationale that I see for the combination.  The reasons that have been advanced are laughable if you give it any realistic thought.  More use of CVS’ Minute Clinics will lower health costs?  These clinics don’t offer services covering even 1% of health spending.  They aren’t going to make a dent in health spending.  Aetna’s drug costs will be lowered by use of either CVS pharmacies or CVS’ Caremark PBM group?  Aetna already has access to the CVS pharmacies and uses services from the Caremark PBM.  The combined entity will have no incentive to lower prices for anything, especially given the higher debt load the combined company will be carrying.  And we can anticipate all kinds of disruption, since CVS still fundamentally has a retail drug store mindset and Aetna is a health insurance company.  I won’t be surprise if, like other big vertical mergers in this space, this one is undone in a few years.

And I strongly hope that the merger is turned down.  We should have learned by now that there is zero benefit to consumers or citizens from corporate mega-mergers.  They don’t lower prices or increase quality or provide any other economic benefits.  What they do is increase economic power in a manner that is most likely to lead to higher prices and less need to attend to the demands of consumers.  And under our current political structure, where money is power, they create organizations that dominate our democratic processes and drown out the voices of individuals.  We don’t need more mega-companies; we need a vibrant smaller company economy and we need a political system that is oriented toward the common person, not rich individuals or organizations.  So write to your congresspeople and demand that this merger be investigated and write to the FTC and DOJ and demand that they stop it.  And write to local insurance regulators asking them not to give approval to the change in control of the Aetna health plans.  And if you are a CVS shareholder, vote against this transaction, in the long run it will decrease the value of your shares.