(Reuters) - Health insurer Aetna Inc AET.N said on Thursday it will sell its standalone Medicare prescription drug plan business to WellCare Health Plans Inc (WCG.N) as it seeks U.S. antitrust approval for a planned acquisition by CVS Health Corp (CVS.N).
The $69 billion CVS-Aetna deal would be the second large deal this year between insurers and pharmacy benefit managers, a consolidation the companies say will help rein in rising U.S. healthcare costs.
CVS said separately that it expects the Aetna acquisition to close in the early part of the fourth quarter of this year.
Rival insurer Cigna Corp’s (CI.N) $52 billion acquisition of Express Scripts Holding Co (ESRX.O), the largest U.S. pharmacy benefit manager, which was announced after the CVS-Aetna transaction, has already passed U.S. Justice Department scrutiny.
Aetna did not disclose the terms of the sale to WellCare but said that the Medicare pharmacy prescription plans, known as Part D plans, covered more than 2.2 million members.
The sale price is likely between $1 billion and $1.5 billion based on the number of members, BMO Capital Markets analyst Matt Borsch estimated in a research note. He forecast the acquisition would add $3 billion to WellCare’s annual revenue and 50 cents to $1 per share to earnings starting in 2020.
Wall Street analysts expected Aetna to sell all or some of its Medicare prescription drug business ahead of its combination with CVS, the largest manager of pharmacy drug plans for the Medicare program for the elderly and disabled.
The sale to WellCare aims to avoid an antitrust lawsuit over the amount of control it would have over the Medicare prescription drug market. Aetna said the asset sale is a “significant step” in the U.S. Justice Department review and that its closing is contingent on that antitrust approval.
Leerink analyst Ana Gupte said that the sale of the entire business “almost certainly ensures approval by the DOJ,” or Justice Department. Selling the entire business also ensures a more seamless handover to WellCare, she said.
WellCare, which specializes in government Medicare and Medicaid insurance plans, has only a small Medicare prescription drug plan business with about 4 percent market share, according to a recent research note from Barclays.
CVS has a 24 percent market share and Aetna has 8.7 percent, according to Barclays.
WellCare said it does not expect to recognize revenue from the deal until 2020 because the terms call for Aetna to provide administrative services and retain the financial risk related to the government plans through 2019.
WellCare shares rose 4 percent to $319.76, Aetna added 0.7 percent to $203.13, and CVS was up 0.6 percent to $78.93.
Reporting by Caroline Humer in New York and Diane Bartz in Washington, D.C.; Additional reporting by Tamara Mathias in Bengaluru; Editing by Anil D'Silva and Jeffrey Benkoe