CVS Health Corp
CVS and Aetna announced on Sunday that they had reached an agreement, two months after talks between the companies were first reported.
Investors gave the deal - which envisions $750 million in savings in 2020 at the earliest - a lukewarm reception. Aetna rose 1 percent, or $1.92, to $183.22 and CVS fell 3.5 percent, or $2.62, to $72.52.
CVS`s immediate earnings-per-share outlook dimmed a bit with the deal: the company said during the conference call it would cancel share buybacks and its upcoming analyst meeting, where it would have given 2018 financial projections. It also outlined increased debt costs to finance the biggest deal of the year.
The assumption is that next year`s CVS earnings will be less than Wall Street currently foresees, Gabelli Funds portfolio manager Jeff Jonas said.
Strategically, he said, the deal has growth opportunities in its long-term plan to drive customers into CVS` MinuteClinics and offer more health services there. "Financially, though, it`s really a stretch," he said.
Leerink analyst Ana Gupte said that investors were increasingly sceptical, but that the deal would probably move forward and only face some regulatory scrutiny and asset sale requirements.CEOs DEFEND DEAL
During a conference call with analysts, Aetna`s top executive Mark Bertolini said that the companies, who were already working together on pharmacy benefits and to expand MinuteClinics, are merging in order to realize the full benefits of the combination. The $750 million in near-term savings comes in part from eliminating corporate redundancies. Long-term healthcare cost savings will occur as they move healthcare functions into CVS stores.
"Owner economics matter here," Bertolini said when asked by a Wall Street analyst why the two companies did not simply partner.
CVS CEO Larry Merlo said the deal would save money for consumers and payers, including the federal government, which pays for the Medicare insurance program from older adults and the disabled and the Medicaid program for the poor.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)
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