EXCLUSIVE: CVS explores options, including possible break-up, sources say
CVS has been discussing various options — including how such a split would work — with its financial advisers in recent weeks, the sources said, requesting anonymity because the discussions are confidential.
Plans to potentially split the company's pharmacy chain and insurance business have been discussed with the board of directors, which has yet to decide on the best course of action for CVS, the sources said, cautioning that the plans have not been finalized. And CVS may choose a different strategy.
CVS is also discussing whether its pharmacy benefit manager unit, which manages drug benefits for health plans, should be kept within the retail unit or under insurance, if it can move forward with a separation that could result in two publicly traded companies, the sources said.
Such a move would effectively unseat health care insurer Aetna's landmark $70 billion takeover of CVS in 2017 and come as CVS attempts to navigate one of the most challenging times in its six-decade history.
A CVS spokeswoman declined to comment on whether it was in discussions to explore options.
“CVS's management team and board of directors are constantly exploring ways to create shareholder value,” the spokesperson said. “We are focused on driving performance and delivering high-quality healthcare products and services enabled by our unmatched scale and integration model.”
CVS, which has a market value of about $79 billion and about $58 billion in long-term debt at the end of December, cut its annual profit forecast in August to $6.40 to $6.65 from a previous forecast of $7.00 per share. .
Item 1 of 2 A general view shows CVS Health Corporation's CVS headquarters in Woonsocket, Rhode Island, US, on October 30, 2023. REUTERS/Faith Ninivaggi/File photo
“While we view management's…adjusted EPS growth target for 2025 as meritorious, we believe uncertainty about 2024 performance, as well as the outcome of CVS's 2025 Medicare Advantage bid, creates a murky outlook for 2025 and beyond,” TDs wrote in a note dated August 11.
Rising costs, lagging share prices
CVS is led by healthcare industry veteran Karen Lynch, who previously headed the Aetna unit, and is overseeing the business with interim chief financial officer Tom Cowhey.
“While we recognize that the medical insurance and PBM operations are currently experiencing challenges, we agree with management, as highlighted at its investor day last year, that the long-term weak link at CVS is likely to be its namesake retail pharmacy stores,” Julie said. Utterback, an analyst at Morningstar. “So unless there is a solution to significantly expand healthcare services in these stores in the near future, there may be a need for a strategic shift.”
Founded in 1963, CVS has its roots in retail pharmacy, and primarily operates more than 9,000 stores in the US through CVS Pharmacy benefit manager Caremark, Medicare home health company Signify Health, and Oak Street Health, a primary care provider for Medicare patients.
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Reporting by Anirban Sen in New York; Additional reporting by Svea Herbst-Bayliss and Amina Niasse; Edited by Carolyn Hummer and Leslie Adler
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