- CVS Health and Aetna are planning to merge in a deal that would create a new, vertically integrated company containing a health insurer, a retail pharmacy, and a pharmacy benefits manager, which negotiates prescription-drug prices with drugmakers.
- While CVS and Aetna shareholders have approved the deal, it remains to be seen whether federal or state regulators will step in to block it.
- On Tuesday, a judge approved the merger of Time Warner and AT&T, another so-called vertical merger. The news sent CVS and Aetna's stocks up after hours.
- The ruling could have big implications for how the Trump administration treats healthcare mergers.
A decision about a proposed merger between two telecommunications companies could be good news for a series of healthcare mergers.
CVS Health's proposed $69 billion mega-merger with Aetna would create a new company containing numerous healthcare businesses, including a health insurer, a retail pharmacy, and a pharmacy benefits manager, which negotiates prescription-drug prices with drugmakers.
Though the deal would combine healthcare businesses that don't compete directly with each other, the US government could still move to block it on the grounds that it would affect competition in the healthcare system.
On Tuesday, a judge approved the case of Time Warner and AT&T, another so-called vertical merger that the Department of Justice took to court.
The approval of the merger could have implications for how the Trump administration will address some of the healthcare mergers that have been unfolding over the past few months and if they'll be challenged as well.
CVS and Aetna were the first to combine, but since then Cigna has made a $67 billion deal with Express Scripts, the US's largest standalone pharmacy benefits manager, and reports have suggested Walmart may be interested in acquiring the insurer Humana.
The news sent CVS and Aetna's stocks rising after hours, along with Cigna and Express Scripts.
But Henry Su, a partner at law firm Constantine Cannon, cautioned against extrapolating that other vertical mergers are in the clear based on the AT&T-Time Warner ruling.
"There'll be a temptation to do so," he said. The judge's written decision, however, made it clear that the ruling was based solely on the merger at hand and the facts presented. Because vertical integrations can be much more complicated than a horizontal merger in which two directly-competing compaines combine, Su said, these types of mergers will likely be evaluated on a case-by-cased basis.
In February, the DOJ asked for an extension to gather more information from CVS and Aetna. The 30-day waiting period needed for the deal to close will not begin until all the information has been obtained, and that process can take a while. Cigna and Express Scripts received a similar request from the DOJ in April.
The merging companies will have to prove to antitrust authorities that the deal is good for consumers.
While that's unfolding, other steps needed to close the deal have moved forward. In March, shareholders from both CVS and Aetna approved the union. As recently as that month, the companies said they expected the deal to close in the second half of the year.
But apart from the federal government, states could also challenge the merger.
The termination fee for the merger, should it be called off, is $2.1 billion, or roughly 3% of the total deal price. On December 4, the day after the deal was announced, Aetna shares closed at $178.70.
As of Tuesday, the stock was trading at about $186, a 4% increase.
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