Walmart may feel pressure from CVS-Aetna deal

The huge buyout news on Wall Street on Monday morning is the $69 billion bid by CVS Health Corp for health insurance giant Aetna Inc. But even before the ink dries on the CVS deal, some analysts are already speculating that Wal-Mart Stores Inc could be the next company to make a major deal in health care.

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Health care experts believe CVS was pressured to target Aetna in the face of mounting evidence that Amazon.com is on the verge of entering the pharmacy business. Increasing competition and the threat of an integrated health care-pharmacy offering from CVS may force Walmart to consider buying long-time partner Humana, according to Leerink analyst Ana Gupte.

[See: 11 Health Care Stocks for a Regular Dose of Income.]

Earlier this year, Humana and Aetna had a potential merger blocked on antitrust grounds, but the new proposed CVS-Aetna deal would be a vertical merger of non-competing businesses. Gupte says Walmart, Humana, Walgreens Boots Alliance, CIGNA Corp. and Anthem may now be looking for similar deals.

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“Humana and Walmart have been in a very tight relationship for six or seven years,” Gupte said on CNBC last week. “It’s not a formal [joint venture], but they steer Humana members to Walmart.”'

Gupte says a potential buyer for Humana would likely need to pay roughly a 25 or 30 percent premium to the company's current market cap, meaning Walmart would potentially have to fork over nearly $50 billion.

In late November, Humana filed a form 8-K with the Securities and Exchange Commission detailing the company’s “change in control policy.” This policy dictates how the company will handle severance pay should company executives be fired following a buyout.

In addition to the new filing, Humana, Aetna and pharmacy benefit management company Express Scripts Holding Co. have all been selling off non-core assets in recent months, a move companies often make in preparation for a buyout. Humana recently sold a large life insurance investment stake and is currently in the process of eliminating 2,700 jobs as part of a cost-cutting initiative.

[See: 7 Health Care ETFs to Buy Now.]

Whether it is Amazon, Walmart, Walgreens or another buyer, the next blockbuster merger in the health care sector could be imminent. For now, rumors and speculation are likely to provide some support for the stocks of potential targets like Humana.

 

Copyright 2017 U.S. News & World Report

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