U.S. pharmacy giant CVS Health Corp has reportedly made an offer to buy Aetna Inc. the No. 3 health insurer in the U.S., for a price of over $200 a share, equal to more than $66 billion, said people familiar with the situation on Thursday.
If this deal is made, it would bring together one of the country’s largest pharmacy operators and benefits managers with one of the oldest healthcare insurers, whose business is far reaching from government plans to employer healthcare nationwide.
Aetna stock increased over 11% on Thursday following the news, while shares of CVS were down 3%.
Consolidation in the healthcare industry has become a popular way for pharmacies and insurers, who have come under heavy pressure from large corporations and the government to lower high medical costs.
Pharmacy benefits managers or PBMs like CVS, negotiate for health insurance plans as well as employers their drug benefits, and have recently taken more of an aggressive stance in negotiations of price with the bigger drug makers.
Often times they can negotiate discounts and rebates from pharmaceuticals in exchange for using their medications in PBM formularies with co-payments that are low.
A merger with Aetna would give CVS additional help negotiating prices with the large drug makers, but it would be subject even more antitrust scrutiny.
The deal could help to counter pressure on stock of CVS following recent speculation that Amazon.com is preparing an entrance to the drug prescription industry, suing its huge platform of e-commerce to take away market share from the other traditional pharmacies.
CVS made its offer earlier in October, although both companies have discussed the possible merger for a number of months.
These discussions involved for the most part CEO of CVS Larry Merlo and CEO at Aetna Mark Bertolini, and aimed at making other executives in the company comfortable with the merger idea, said sources.
Aetna and CVS began discussing terms just recently, and this deal is not expected to be announced for the next few weeks, said one source, cautioning the pace of the current talks could speed up given that the negotiations have been made public.
Both sources did not say how much of the bid made by CVS was to be paid in stock and how much in cash, but given the market capitalizations of both CVS at $77 billion and Aetna at $54 billion, a substantial part of the deal would include stock.