Exclusive: CVS Examines Options, Including Possible Break-Up, Sources Report – Reuters

By Anirban Sen

NEW YORK – CVS Health is considering various options, including the potential separation of its retail and insurance business units, amid ongoing pressure from investors as the company seeks to improve its performance, according to sources familiar with the situation.

In recent weeks, CVS has been in talks with financial advisers to explore how such a split might be structured, with discussions taking place confidentially. The company’s board of directors has been informed about the proposal, but no final decision has been made on the best path forward.

One area under consideration is whether CVS’s pharmacy benefits manager, which oversees drug benefits for health plans, should be aligned with the retail division or the insurance segment if a separation occurs to establish two publicly traded entities.

This initiative could effectively reverse CVS’s significant $70 billion acquisition of healthcare insurer Aetna in 2017, coming at a time when CVS is navigating one of the most challenging phases in its nearly 60-year history.

A spokesperson for CVS has refrained from commenting on specific discussions regarding strategic options but emphasized the management and board’s ongoing efforts to enhance shareholder value. They highlighted a commitment to driving performance and delivering quality healthcare services through an integrated business model.

These deliberations come as CVS faces mounting pressure from investors, including Glenview Capital, which is advocating for operational improvements. The company has faced several setbacks, including a downgraded earnings outlook for the third consecutive quarter.

With a market capitalization of approximately $79 billion and long-term debt nearing $58 billion, CVS lowered its annual profit forecast to a range of $6.40 to $6.65 per share, revised down from at least $7.00.

Analysts have expressed concerns about CVS’s uncertain performance outlook for 2024, particularly in light of the company’s Medicare Advantage bids.

The departure of Aetna’s head, Brian Kane, was announced recently, following underperformance in the Medicare sector attributed to rising healthcare costs. Aetna alone constitutes about a third of CVS’s overall revenue.

CVS is not alone in facing these challenges, as other health insurers, including major competitors, are grappling with increasing medical costs as well.

Today, CVS remains under the leadership of Karen Lynch, an experienced figure in the healthcare industry. The company’s stock has declined by nearly 25% this year, contrasting sharply with the broader market, as it currently trades at a lower valuation compared to its leading rivals.

Industry analysts have suggested that unless CVS addresses ongoing issues in its retail pharmacy operations, a strategic reevaluation may be necessary to foster growth. Founded in 1963, CVS has expanded significantly over the years, with more than 9,000 stores across the U.S., bolstered by various acquisitions in the healthcare sector.