CVS Health Corporation, one of the most substantial healthcare companies in the United States, is currently encountering substantial pressure, which might lead to the company considering a potential break-up. However, with numerous factors at play, this move is fraught with risks.
Several Wall Street analysts and investors posit the idea that CVS Health could substantially drive up its stock price if it decides to split its pharmacy business from its health insurance unit, Aetna. Aetna, a giant in the health insurance arena, became a part of the CVS conglomerate in 2018 when the corporation acquired it for an astounding $69 billion.
The two-pronged business structure of CVS has provided it with a unique standing in the market, marrying the concept of health insurance and pharmacy services. However, this combined operation is now seen as a potential setback by many market watchers. They argue that this amalgamation is not adding enough value for shareholders, given the relatively calm performance of CVS Health stock over the years.
A significant contention particularly arises from the way these two units function together. CVS has leveraged Aetna’s patient data to improve the services offered at its pharmacy counters and clinics. Notably, MinuteClinics, a part of CVS Health, employs Aetna’s data to streamline its services towards improved preventive care. However, according to some shareholders and analysts, such collaborations between the units have not materialized into enhanced stock prices, thus fuelling the break-up speculation.
Even if benefits aren’t directly reflected in the share price, the symbiosis between CVS’s pharmacy business and Aetna has borne some fruitful outcomes. For instance, it fostered the creation of CVS’s HealthHUBs, a major initiative providing comprehensive health and wellness products and services. A significant portion of HealthHUB’s customers are Aetna insureds. Without the integrated model, this coordination could be harder to achieve.
Diving into the specifics, though, a potential split-up could pose risks and uncertainties that are not apparent to discerning shareholders and analysts. Firstly, the timing could not be potentially worse. The ongoing pandemic has disrupted businesses worldwide, and navigating a break-up amid such instability would be akin to opening a COVID-19 Pandora’s Box. Uncertainties relating to regulations, financial conditions, and long-term impacts of the pandemic could make the split a slippery path.
Furthermore, severing the deep-knit connection between the two organizations would likely bring massive restructuring costs. These include potential severance packages, logistical costs, the cost of re-establishing separate entities, and possibly renegotiating contracts with suppliers and service providers.
To add to this, a split could negatively impact offerings like the HealthHUBs. These outlets rely heavily on the interconnected resources from both Aetna and CVS pharmacy. Isolating these entities could lead to interrupted service delivery, decreased customer satisfaction, and ultimately, reduced revenue.
Drawing a parallel with past examples, the merger between Activision and Vivendi Games in 2008, which led to the creation of Activision Blizzard, was rewarding at first but ultimately led to a regrettable separation. The painful process witnessed layoffs, costs, and mishandling of franchise brands. Worst of all, the separation did not yield the desired