CVS needs to step up to competition from Amazon and Aetna needs to reinvent its business model, says analyst
The proposed merger between CVS Health Corp. and Aetna Inc. is not a done deal yet, but analysts are already cheering the prospects of the two health care giants teaming up against increased competition, including the new threat from Amazon.com Inc.
The Wall Street Journal reported on Thursday that CVS CVS, -5.89% is in talks with Aetna AET, -3.07% and has offered to buy the health insurer for more than $200 per share, which would value the company at more than $66 billion.
Shares of Aetna rallied 12% after the reports, while CVS closed 2.9% lower on Thursday. CVS shares fell 3.5% in early trade Friday, while Aetna slid 0.3%.
According to the WSJ sources, the merger proposal was spurred by expectations that Amazon AMZN, +13.22% would enter the pharmacy business.
That concern that was underscored on Thursday by reports Amazon has obtained approval to become a wholesale pharmaceutical distributor in a number of states. Such a move is expected to pressure a wide range of industry players, including drug wholesalers, pharmacy chains and pharmacy-benefit managers, middlemen that negotiate drug prices.
A tie-up between a retailer like CVS and a health insurer like Aetna may seem surprising on the surface. But experts say both parties need to make strategic moves to address the changes in the sector, including the possible threat from juggernaut Amazon.