A judge just approved AT&T and Time Warner's merger - and it could be good news for a series of healthcare mega-mergers
- CVS Health and Aetna are planning to merge in a deal that would create a new, vertically integrated company containing a health insurer, a retail pharmacy, and a pharmacy benefits manager, which negotiates prescription-drug prices with drugmakers.
- While CVS and Aetna shareholders have approved the deal, it remains to be seen whether federal or state regulators will step in to block it.
- On Tuesday, a judge approved the merger of Time Warner and AT&T, a similar merger. The news sent CVS and Aetna's stocks up after hours.
- The ruling could have big implications for how the Trump administration treats healthcare mergers.
A decision about a proposed merger between two telecommunications companies could be good news for a series of healthcare mergers.
CVS Health's proposed $69 billion mega-merger with Aetna would create a new company containing numerous healthcare businesses, including a health insurer, a retail pharmacy, and a pharmacy benefits manager, which negotiates prescription-drug prices with drugmakers.Though the deal would combine healthcare businesses that don't compete directly with each other, the US government could still move to block it on the grounds that it would affect competition in the healthcare system.
On Tuesday, a judge approved the case of Time Warner and AT&T, another so-called vertical merger that the Department of Justice took to court.
The decision could be a guidepost for whether the Trump administration may take action against CVS-Aetna as well, Matthew Cantor, a partner at the law firm Constantine Cannon, told Business Insider in April.
"We're in the Wild West somewhat as to what antitrust policy is going to look like, as we are with so many aspects of the Trump administration, " Cantor said. "We're in the Wild West somewhat as to what antitrust policy is going to look like, as we are with so many aspects of the Trump administration, "
The proposed merger aims to combine Time Warner, which creates content through its businesses like HBO and Warner Bros., with AT&T, which distributes that content.
The approval of the merger on Tuesday could have implications for how the Trump administration will address some of the healthcare mergers that have been unfolding over the past few months and if they'll be challenged as well.CVS and Aetna were the first to combine, but since then Cigna has made a $67 billion deal with Express Scripts, the US's largest standalone pharmacy benefits manager, and reports have suggested Walmart may be interested in acquiring the insurer Humana.
The news sent CVS and Aetna's stocks rising after hours, along with Cigna and Express Scripts.
In February, the DOJ asked for an extension to gather more information from CVS and Aetna. The 30-day waiting period needed for the deal to close will not begin until all the information has been obtained, and that process can take a while, Cantor said. Cigna and Express Scripts received a similar request from the DOJ in April.
The merging companies will have to prove to antitrust authorities that the deal is good for consumers.
"They have to test whether those efficiencies will be gamed, or at least whether or not it is likely that the merger will result in a substantial lessening of competition, which could include price increases of pharmaceutical drugs to non-Aetna competitors who may not get the benefit of rebates that Aetna will get," Cantor said.
While that's unfolding, other steps needed to close the deal have moved forward. In March, shareholders from both CVS and Aetna approved the union. As recently as that month, the companies said they expected the deal to close in the second half of the year.
But apart from the federal government, states could also challenge this, something the two companies have acknowledged.
"Completion of the transaction remains subject to customary closing conditions, including expiration of the federal Hart-Scott-Rodino antitrust waiting period and approvals of certain state departments of insurance and other regulators," Aetna said in a March release.The termination fee for the merger, should it be called off, is $2.1 billion, or roughly 3% of the total deal price. On December 4, the day after the deal was announced, Aetna shares closed at $178.70.
As of Tuesday, the stock was trading at about $186, a 4% increase.