Shares of health insurer Aetna are up sharply as news began to circulate that pharmacy chain CVS Health (NYSE: CVS – $69.81) was in talks to acquire the company. CVS stock has fallen nearly 5% so far today and near a 52-week low, perhaps on the amount it is believed to be paying for this move. Early reports are that CVS has made a bid to buy Aetna for $200 a share, which would value that company at more than $66 billion. Neither company was commenting on the matter, but the combination makes a lot of sense for each party. For starters, the prospect of these two healthcare giants teaming up is clearly a response to the new threat that Amazon.com is placing on the sectors that both entities serve. Recent filings point out that Amazon has obtained approval to become a wholesale pharmaceutical distributor in a number of states. The e-tailer’s growing presence in the past few years has wreaked havoc on the retail space, and this move would certainly be an unwelcome advance to companies like drug wholesalers, pharmacy chains and pharmacy benefit managers such as CVS Health.
I believe this union is ideal for both companies, but will curb my enthusiasm until more details of the negotiations come out, most notably the price. As of now, the investment community is not sold on the $200-a-share price tag that has been floated. However, CVS has strong cash flow and has shown a willingness to make these somewhat outside the box type moves in the recent past. I will continue to hold onto CVS Health for now, but it has certainly lost some of its luster of late.