The MergerSight Group: CVS Health's $69 billion Acquisition of Aetna

Risks and Uncertainties …………………………
While the strategic rationale for the acquisition makes sense, there are a
few risk factors stakeholders ought to keep in mind. First and foremost,
it should be noted that it is impossible to tell how the combined
company’s leverage could be used, as such a concentration of power in
the healthcare system is unprecedented. Recently, the DoJ has become
more sceptical of so called vertical mergers, but according to lawyers
for both sides, the deal is expected to clear any regulatory difficulties.
It should also be taken into account that the acquisition will initially be
financed with a bridge loan. Given the long time period between the
announcement, the acquisition and the financing of the long term debt to
replace the bridge facility, a risk factor constitutes the unknown interest
rates. Coupled with the fact that we are in a rate-hiking cycle,
fluctuations on the price of long term corporate bonds are likely to affect
how the market choose to view this transaction.
Looking ahead, investors should keep an eye on the three american
giants - Amazon, JP Morgan Chase and Berkshire Hathaway - which
announced that they are forming a new health care company. For the
time being, the plan will focus solely on staff of the companies, but it
remains to be seen if it stays that way. The announcement was enough
to sink health care stocks and CVS Health was not an exception,
rendering the stock to fall 4.9%.
6 | CVS Health’s $69 billion Acquisition of Aetna
Public Relations
“The CVS-Aetna deal is an
effort at vertical integration,
which by removing
rent-seeking middlemen can,
in theory at least, lead to more
choice. This deal could make
CVS a more formidable
competitor against possible
new entrants, such as
Amazon. Besides that, CVS
could extract efficiencies by
cutting out the middlemen in
the health-care supply.”
“The combination of a vast
drugstore chain with an
insurer is the first in the US,
and although it will not
consolidate either sector, the
deal is still likely to be closely
scrutinised by antitrust
regulators, which are
concerned about any one
company amassing too much
consumer power.”