October 27, 2017 / 1:45 PM / a year ago

CVS-Aetna deal gets Wall Street thumbs up amid Amazon entry fears

Oct 27 (Reuters) - U.S. pharmacy operator CVS Health Corp’s move to buy health insurer Aetna Inc will broaden their reach in the industry and could spark another round of dealmaking in a sector dreading Amazon’s arrival, analysts said.

Shares of Aetna, the third-largest U.S. health insurer, were marginally up in early trading on Friday, after closing 12 percent higher on Thursday following reports of the deal. CVS Health was down about 1 percent.

CVS Health has made an offer to acquire No. 3 U.S. health insurer Aetna for more than $200 per share, or over $66 billion, making it the biggest deal of the year, Reuters reported on Thursday.

“A potential combination would diversify CVS profit streams ahead of an Amazon entry and set the stage for a new healthcare-retail delivery model,” Morgan Stanley analysts wrote in a note.

Amazon.com Inc’s speculated entry has hit shares of most drugstore operators on fears that the online retailer would leverage its vast ecommerce platform to take market share from traditional pharmacies.

“We believe CVS does need to respond to the potential threat and strike a different path,” Cowen & Co analyst Charles Rhyee said in a note.

A deal would make CVS-Aetna a one-stop shop for customers’ health care needs - ranging from employer healthcare and government plans to managing benefits and running drug stores.

The vertical integration of retail pharmacy, PBM, and insurers fits with broader healthcare themes of expanded access, consumerism and cost reduction, Jefferies analysts said, adding that the deal chatter was not a complete surprise.

“It would address each company’s need for a fresh script.”

Some analysts said the deal could also trigger a wave of consolidation across the industry.

It could be a possible catalyst for higher health insurance sector valuation, BMO Capital Markets analyst Matt Bosch said, adding that WellCare Health Plans, Humana and Centene could be possible acquisition targets.

Aetna earlier this year closed the door on a deal with rival insurer Humana Inc after antitrust regulators said that the combination and a rival deal between Anthem Inc and Cigna Corp were anti-competitive. (Reporting by Ankur Banerjee in Bengaluru; Editing by Saumyadeb Chakrabarty)

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