Antitrust concerns possible in Aetna deal
NEW YORK/ WASHINGTON • CVS Health Corp.’ s US$ 67.5 billion takeover of Aetna Inc. will test the Trump administration’s approach to far- reaching corporate takeovers, just weeks after the U.S. government sued to block a major telecommunications merger.
The health- care deal unveiled Sunday would create an industry giant with more than US$ 240 billion in annual sales with a hand in insurance, prescription drug plan administration, retail pharmacies and corner clinics.
The companies said the combination will save US$ 750 million in costs and bring consumers better, more efficient health care.
In the past, deals combining companies up and down a chain of business — such as a supplier and a distributor — have been viewed as posing less anticompetitive risk than combinations of direct rivals. Last month, however, the Justice Department sued to block just such a “vertical” merger between AT&T Inc. and Time Warner Inc., saying it would harm consumers and limit their media content options.
“We are obviously going to get some scrutiny,” Aetna chief executive officer Mark Bertolini said Sunday. “We are prepared to deal with whatever comes along to make this work.”
Aetna shares were down 1.4 per cent to US$ 178.70 Monday in New York. That’s below CVS’s US$207-a-share offer for the company and a sign investors are skeptical the deal will close at the current price. CVS was down 4.5 per cent to US$71.69.
How much scrutiny the deal gets from Washington may depend on which federal agency reviews the takeover — the Justice Department, or the Federal Trade Commission.
Both scenarios present obstacles.
The FTC has typically handled mergers of retail businesses like CVS. While it allowed Walgreens Boots Alliance Inc. to buy more than 1,900 Rite Aid Corp. stores earlier this year, the deal had to be significantly scaled down to gain the regulator’s approval. The Justice Department, meanwhile, successfully sued to block insurance mergers between Anthem Inc. and Cigna Corp, and Aetna and Humana Inc.
In the past, vertical deals have typically won approval after companies agree to restrictions on how they operate.
That may be changing. The Justice Department’s new antitrust chief, Makan Delrahim, has criticized past settlements that allowed vertical deals with behavioural restrictions. In a speech last month, Delrahim said such conditions don’t work and force antitrust enforcers to become regulators.
That view was behind Delrahim’s decision on Nov. 20 to sue to block AT& T’s proposed acquisition of Time Warner, a vertical deal that would bring together Time Warner content like HBO with AT& T’s pay-TV and wireless distribution.
“Most vertical deals don’t raise antitrust concerns, and the ones that do generally get approval to close with an agreement containing behavioural conditions,” said Jennifer Rie, a Bloomberg Intelligence analyst who follows antitrust issues, in an email. “But the Justice Department appears to be rejecting this kind of remedy given its approach to the AT& T-Time Warner deal.”
That doesn’t mean there’s heightened hostility t oward vertical deals at the Justice Department, but CVS might prefer the Aetna deal to go to the FTC given Delrahim’s criticism of behavioural fixes, said David Kully, an antitrust lawyer at Holland & Knight in Washington and a former Justice Department attorney.
“Delrahim was very clear in his concerns about behavioural decrees and then put his money where his mouth i s when he brought t he AT&T case,” Kully said.
The deal should improve access to care, and also lower premiums for many consumers, Aetna’s former CEO John Rowe said in an interview on Bloomberg Radio. Other consumers might find themselves not getting the benefits of the combination if they’re covered by Aetna but not near a CVS, said Rowe.
WE ARE OBVIOUSLY GOING TO GET SOME SCRUTINY