CVS WANTS IT ALL. New Look CVS? Wall Street seemed to be concerned by the size of the deal and the disruption it could cause to CVS as shares sank 5%. – by Todd Horwitz, Bubba Trading.

 

CVS WANTS IT ALL
New Look CVS?

The CEOs of drug retailer CVS and health insurer Aetna were marvelously in sync Sunday when they jointly announced their companies’ $69-billion merger deal. The deal will “dramatically further empower consumers,” Aetna’s Mark Bertolini said. It will “create a platform that is easier to use and less expensive for consumers,” according to Larry J. Merlo, president and CEO of CVS Health. They repeated these mantras to the press in a series of joint interviews.

The combination of the two companies is supposed to bring together Aetna’s patient data and CVS’s sprawling network of nearly 10,000 brick-and-mortar sites to squeeze out costs while improving care and convenience. But no major health-care company has tried to build a vertical system around the combination of drugstores, insurance and pharmacy-benefit management, the main businesses of CVS and Aetna, experts said. The merged company will lack a strong foundation of its own doctors, who make many of the decisions that influence both costs and quality of care.

“There is no question that we have the opportunities to repurpose some of the space in our stores to enable that to happen,” Merlo said on the call. “We know there’s a solution there in terms of being a complement to the physical.” CVS’ clinics initially began with basic health care services like a cold or strep throat but now encompass more sophisticated services such as blood draws and keeping tabs on chronic conditions like diabetes. What’s more, a CVS store is an easy drive to tens of millions of Americans, an ordinary CVS with those services can turn into a new option compared to a hospital visit to get a blood test or get their blood pressure checked.

Such clinics often operate more convenient hours than a hospital and cost less than a doctor visit. And this closer interaction with customers could reduce pressure on the overall health care system by reducing hospital stays, Merlo said. “The current U.S. healthcare system is failing too many people.”

At the same time, Wall Street seemed to be concerned by the size of the deal and the disruption it could cause to CVS as shares sank 5%. Moody’s applauded the deal but said it “will result in significant weakening of CVS’s credit metrics.” And Jefferies, an investment bank, said that “the transformation that CVS’s retail footprint will have to undergo, not mention the capital and effort required to restructure its 9,000+ store footprint, poses meaningful operational risk.” We will keep you updated on their progress.

Keep those stops tight
Todd “Bubba” Horwitz

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About the author

Todd Horwitz – Author of “Average Joe Options“. Todd began his trading career in 1980 at the CBOE. He was one of the original traders in the OEX & helped start the SPX. He is a member the CME where he trades S&P futures as well as foreign currencies & is a regular contributor to CNBC, Bloomberg, BNN, Fox & many other major news networks.