CVS Health announced a break-up, separating its retail pharmacy from its health insurance arm, which generated $320bn in revenue this year. The move is seen as an admission that previous M&A attempts to beautify the group have failed. Over two decades, CVS completed nearly $150bn in deals, including Caremark, Aetna, and Oak Street Health, aiming to own the entire patient value chain.
Despite promised synergies of $1.7bn from Caremark and $500mn from Oak Street, CVS stock underperformed, rising only 30% over a decade while the S&P 500 Healthcare index more than doubled. The unpopularity of Big Healthcare has triggered regulatory and state-level backlash, pushing for separation of drug stores from pharmacy benefit managers. Both retail and insurance are low-margin, high-turnover businesses, each with operating margins below 5%.
The company’s market cap fell by nearly $15bn on the announcement day, and Senator Elizabeth Warren warned that CVS is still trying to “rip people off”. The lesson is that in the complex US healthcare system, CVS neither managed to leverage its size nor will benefit from being more nimble. Some ailments, the article suggests, cannot be fixed by corporate restructuring.
Source: Financial Times Companies · Summarized by HeadlinesBriefing