On Monday, pharmacy chain CVS (CVS) agreed to pay $69 billion in cash and stock for healthcare insurance provider Aetna Inc. (AET) . The merger could change the way patients receive non-critical care, as the company would become both provider and insurer. It could also set off a chain reaction of similar deals.
It's an interesting concept. The neighborhood pharmacy has slowly been assuming some of the qualities of a healthcare clinic. For example, many of us already go there for flu shots, which was unheard of years ago. Visits for diabetes consultation have also become commonplace.
What CVS seeks to do with this deal is to dramatically accelerate that process, and change the nature of the neighborhood pharmacy. For example, we already know that getting a flu shot at the pharmacy is more convenient than making an appointment with a doctor.
What if an entire array of services was available at the pharmacy? Better yet, what if it would cost less to have those services performed at the pharmacy? The advantage to the provider is clear; send the patients to the pharmacy, and free up the doctors for more pressing needs.
Of Aetna's competitors, which one is the most likely to be acquired next? Anthem (ANTM) is a possible target. The company has a similar market cap ($57.75 billion) to Aetna, and had already entered into a pharmacy management agreement with CVS called IngenioRx. Now that CVS plans to acquire Aetna, Anthem will most likely terminate the IngenioRX relationship.
Humana (HUM) is another name that could see some action. With a market cap of $36 billion, Humana may be easier to swallow than some of the larger names in this sector. Last month's layoffs at the company may have been intended to smooth the way for a merger.
Cigna (CI) is known to be open to a merger; the company attempted to couple with Anthem earlier this year, but the deal was shot down due to anti-trust concerns. However, a deal with a pharmacy company -- or even a player looking to enter that arena, like Target (TGT) -- could change that outcome.
Both CVS and Aetna traded lower on Monday's news. In fact, the entire healthcare group took a pounding, with Anthem losing 3.21% and Humana down 2.46%. Keep in mind, just because Wall Street doesn't like the sector now, it doesn't mean that the CVS/Aetna merger won't go through, or that similar deals won't occur in the future.