One of the key events that laid the groundwork for CVS Health Corp.'s Dec. 3 decision to buy insurer Aetna Inc. was the drugstore chain's choice to exit one product category more than three years ago, an SEC filing made by the company shows.
In a transcript of a video distributed to CVS employees and filed with the SEC on Dec. 7, President and CEO Larry Merlo recounted a conversation with Aetna Chairman and CEO Mark Bertolini shortly after CVS decided to end sales of tobacco products.
CVS announced the change in February 2014 and claims it pulled the products, including cigarettes, from shelves at all of its U.S. stores by the fall of that year.
At the time, CVS was less than four years into a 12-year contract that made it a pharmacy benefit manager, or PBM, to some of Aetna's patients. With the basics of that agreement implemented, Merlo said he and Bertolini were discussing ways to deepen the relationship between the two companies, according to the filing.
"And, I remember calling you when we eliminated tobacco," Merlo said, according to the transcript, describing a conversation he had with Bertolini around the time of the decision. He added that the decision indicated that CVS was "not a convenience store" but a health-focused retailer.
"Right," Aetna's Bertolini said, according to the transcript.
Aetna's interest in CVS' choice to end tobacco sales adds a new detail to a courtship between the two companies and their top executives that predates the transaction they announced Dec. 3.
The Wall Street Journal first reported in October that the two companies were in talks for a deal. In May, Bertolini said during a call to discuss Aetna's first-quarter financial results that he was interested in working more closely with CVS, especially to offer more services directly to consumers.
During the call, Bertolini said Aetna was working with CVS "to fundamentally rethink" the pharmaceutical services it offered, though it was "still too early to tell" which company would provide those services.
Provided the deal wins approval from shareholders of both companies and from federal antitrust regulators, the deal would pave the way to turn CVS stores into one-stop centers for patients, putting medical care, pharmacy benefits and health insurance under a single roof. In a separate document it filed with the SEC on Dec. 7, CVS said it plans to devote 15% of its store format to offer more medical services.