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CVS Health Closes Aetna Deal, Focuses More on Pharmacy Wing

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CVS Health Corporation (CVS - Free Report) has finally completed the long-awaited $70-billion consolidation of Aetna. This came close on the heels of the company getting the final regulatory approval required for wrapping up this colossal merger.

The culmination of this huge deal marks the creation of a new healthcare powerhouse, which combines CVS Health’s broad pharmacy business with Aetna’s giant insurance base. In a nut shell, the combined entity is aiming to create a new health care model that is local, easier to use, less expensive and provides advanced care. With this news, shares of CVS Health inched up 0.8% to $80.27 at the close of business on Nov 28.

Transaction Detail

Under the terms of the transaction, each outstanding share of Aetna has been exchanged for $145 in cash and 0.8378 shares of CVS Health common stock. 

The purchase consideration of Aetna is valued at $212 per share or approximately $70 billion. Including the assumption of Aetna's debt, the total worth of the transaction is $78 billion. The combined company's shares will be listed under the NYSE with the ticker symbol CVS. Post-integration, Aetna will operate as a stand-alone business within the CVS Health enterprise.

A Strategic Consolidation

Per CVS Health, the combined company on one hand will provide customers with the powerful health resources of CVS Health in communities across the country. While on the other, it will offer customers with Aetna's network of providers for high quality care. This will help building lasting relationships with consumers, making it easier for them to access information, resources and services.

CVS health stated that the combined company’s new products and services will be broadly available to the health care marketplace, regardless of one's insurer, pharmacy benefit manager (PBM) or pharmacy of choice. Legacy CVS Health’s offerings like retail pharmacy services, specialty pharmacy and long-term care plus walk-in clinical services and PBM services, will continue to be fully accessible to other health plans. Aetna members will also consistently have a broad network of pharmacies including community-based independent pharmacies. CVS Pharmacy will steadily participate within the pharmacy networks for other PBMs and health plans.

With regard to the new health care model, CVS Health announced that in the coming months, it will introduce new programs and services targeting improving access to care, health outcomes and reduction in medical costs for all consumers. These programs specifically will pursue better and more efficient management of chronic disease using the networks, technology and the people of the combined company.

Synergy Benefits: A Glimpse

CVS Health is highly optimistic about this merger. Per the company, this move has great potential in the long haul to deliver a significant incremental value in terms of developing products and generating growth opportunities as a uniquely integrated retailer, pharmacy benefits manager and a far-sighted health planner.

During CVS Health’s third-quarter 2018 earnings call earlier this month, it notified that the combined entity is expected to generate more than $750 million in savings in the second year of the acquisition’s completion by just merging both companies’ existing assets and capabilities. A majority of these synergies will be derived from lower corporate expenses and the conjoining of both companies’ operations along with some cutbacks in medical costs.

Per CVS Health, shareholders can look forward to several outcomes with respect to the near-term synergy including an enhanced competitive positioning and a new unified platform that might redefine access to high-quality care at low cost, thus substantially accelerating the consolidated business’ growth.

Share Price Performance

Shares of CVS Health have underperformed its industry in the past six months. The stock has rallied 21.3% compared with the 24.6% rise of the industry.

Zacks Rank and Key Picks

CVS Health currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader medical space are Integer Holdings Corporation (ITGR - Free Report) , Surmodics, Inc. (SRDX - Free Report) and Veeva Systems (VEEV - Free Report) .

Integer Holdings has an expected earnings growth rate of 30.3% for the current year and a Zacks Rank #2 (Buy).

Surmodics’ long-term earnings growth rate is projected at 10%. The stock carries a Zacks Rank of 2 currently.

Veeva Systems’ long-term earnings growth rate is estimated at 19.3%. The stock carries a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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