CVS Health Corp. formally announced a massive bid to purchase health insurer Aetna Inc., in the largest managed-care deal in more than two years.
The deal is valued at about $69 billion, or $207 per share — higher than the $66 billion price tag rumored in recent media reports. It consists of $145 in cash and 0.8378 of a CVS share for each Aetna share, according to a Dec. 3 merger announcement. Including the assumption of Aetna's debt, the total value of the transaction is $77 billion.
The transaction is expected to close in the second half of 2018, subject to approval by CVS and Aetna shareholders, regulatory approvals and other customary closing conditions. At closing, Aetna shareholders will own approximately 22% of the combined company and CVS shareholders will own approximately 78%. The deal is expected to result in low- to mid-single-digit accretion in the second full year after the close of the transaction, according to the merger release. This includes the ability to deliver $750 million in near-term synergies.
Over the longer term, the companies said the merger "has the potential to deliver significant incremental value as it will spur the development of new products and generate significant new growth opportunities as a uniquely integrated retailer, pharmacy benefits manager and health plan."
CVS plans to fund the cash portion of the deal through a combination of existing cash on hand and debt financing. The transaction is not contingent on the company receiving financing. Barclays, Goldman Sachs and Bank of America Merrill Lynch are providing $49 billion of financing commitments.
At closing, three Aetna directors, including Aetna Chairman and CEO Mark Bertolini, will join the CVS board. Aetna's management team will also play "significant" roles in the combined company, according to the merger release. Aetna will operate as a stand-alone unit within the broader CVS business and will be led by members of the existing management team.
Barclays and Goldman Sachs are serving as financial advisers to CVS, and Centerview Partners also provided financial advice to the CVS board. Shearman & Sterling LLP, Dechert LLP, and McDermott Will & Emery LLP provided legal advice to the buyer.
Lazard and Allen & Company LLC are serving as financial advisers to Aetna and Evercore is serving as financial adviser to the insurer's board. Davis Polk & Wardwell LLP is acting as Aetna's legal adviser.
The largest managed-care deal in years
Both companies have been in deal talks since October, according to news reports. If approved by federal regulators, the deal would put a chain of retail pharmacies, a pharmacy benefit manager and a healthcare provider under the control of a single company.
The insurance department for Connecticut, where Aetna is domiciled, will "thoroughly review" the proposed transaction, said Katharine Wade, the state's insurance commissioner.
"The Department has not yet received a formal application, known as a Form A, from the acquiring party — in this case CVS. Per state statute, the review will include a public hearing once the Department deems the application is complete," Wade said in a statement provided to S&P Global Market Intelligence after the deal was announced Dec. 3.
Analysts said the only regulatory hurdle would likely be both companies' Medicare Part D drug benefit. Medicare Part D is federally funded insurance for seniors that subsidizes prescription drug coverage.
Jefferies equity analyst David Windley said in an interview that the Part D component could be easily divested or adjusted to satisfy regulators.
The purchase would also pave the way for CVS to offer more healthcare services at some or all of its retail locations. The chain operates about 9,700 stores in 49 states, Puerto Rico, Washington, D.C. and in Brazil, according to S&P Capital IQ.
Revamping CVS stores to accommodate those additional services would likely require significant investment beyond the purchase price, Cowen analysts wrote in a research note in October.

According to an S&P Global Market Intelligence analysis of the largest managed care deals since 2015, the Aetna-CVS merger tops the list by billions of dollars.
Analysts have suggested that CVS might be pursuing a deal with Aetna in an attempt to diversify its operations in case e-commerce giant Amazon.com Inc. enters the pharmacy business.
Publicly, CVS executives said Amazon would have difficultly navigating government regulations on pharmaceuticals as well as replicating the relationships that brick-and-mortar pharmacies have created with customers.
At the same time, CVS said in November that it would expand home delivery options, including same-day delivery for prescription drugs and some general merchandise to customers in certain large cities.
