CVS-Aetna Deal Dodges Antitrust Hurdle That AT&T Faced
(Bloomberg) -- CVS Health Corp. has dodged one hurdle in its bid to buy insurer Aetna Inc., as antitrust enforcers don’t see competitive problems that can stem from uniting companies that operate at different levels of a supply chain, according to two people familiar with the matter.
That question has hung over the deal since it was announced last year because the Justice Department under President Donald Trump has raised the bar for approving such transactions, which are known as vertical deals because they don’t combine direct competitors.
The investigation by the Justice Department’s antitrust division hasn’t turned up vertical- competition concerns from the merger, according to the people, who declined to be identified because the review is confidential. Instead, the government is focused on competition between the companies in the prescription-drug market, the people said.
CVS’s $68 billion deal to buy Aetna was announced on the heels of the Justice Department’s unsuccessful lawsuit to block AT&T Inc.’s takeover of Time Warner Inc., a vertical deal that combined a pay-TV distributor with a programmer. That case was a warning shot that enforcers were suddenly taking a tougher stand on such tie-ups.
The Aetna acquisition would combine the U.S. drugstore giant with the third-biggest health insurer. CVS also manages drug-benefits plans for employers and insurers, a business that could help steer some of Aetna’s 22 million customers into CVS drugstores when they fill a prescription.
It’s one of two health-care transactions that are poised to reshape the industry. The other is insurer Cigna Corp.’s planned purchase of Express Scripts Holding Co., a pharmacy-benefit manager. That deal is facing opposition from activist investor Carl Icahn, who has acquired a stake in Cigna.
The Justice Department and Aetna declined to comment. CVS declined to comment other than to say it was continuing to work productively with the antitrust division’s staff. The government’s focus on prescription drugs was earlier reported by the Capitol Forum.
With vertical issues no longer a focus of the probe, CVS may have an easier path to approval. Completing the deal could require asset divestitures in areas where the companies compete head to head.
One of the most obvious areas of overlap is in Medicare Part D, the government-sponsored prescription drug plan for the elderly. CVS is the largest provider of Part D plans, with more than 6 million patients enrolled as of June, according to data compiled by Bloomberg Intelligence.
Aetna is a smaller Part D player, with just under 2.2 million patients in the drug plans, according to Bloomberg Intelligence. It also runs a separate type of Medicare plan called Medicare Advantage that typically includes drug coverage as part of a full package of inpatient and outpatient benefits.
By acquiring Aetna, CVS would have national market share in Part D plans of about 33 percent, according to the California Department of Insurance, which reviewed the merger and urged the Justice Department on Aug. 1 to sue to block the deal. If the deal goes ahead without changes, three companies would control 83 percent of the Part D market in California, the regulator said.
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