CVS Board Conducts Strategic Review of Company
Among the possible options for the healthcare company is a breakup
CVS Health is conducting a strategic review of options for the company, including a possible breakup of the industry giant, according to people with knowledge of the matter.
The company’s board of directors has retained bankers to facilitate the review, which has been ongoing for weeks, the people said.
No decision by CVS is imminent, and it is possible there won’t be any major changes in the business as a result, they added.
The review includes different options, including various forms a potential breakup could take, some of the people said.
Reuters earlier reported that CVS had tapped bankers to explore options including breaking up the company.
“CVS’s management team and Board of Directors are continually exploring ways to create shareholder value. We remain focused on driving performance and delivering high quality healthcare products and services enabled by our unmatched scale and integrated model,” a CVS spokesman said.
The review comes after CVS has struggled to realize the promise of its efforts to build a healthcare conglomerate spanning major sectors of the industry.
On Monday, hedge fund Glenview Capital Management met with CVS to discuss ways to improve operations, The Wall Street Journal reported. Glenview owns about 1% of CVS’s shares outstanding.
CVS, which began as a health and beauty product retailer, became a household name through its pharmacies. In recent years it has grown into a healthcare juggernaut, combining a pharmacy-benefit manager CVS Caremark, health insurer Aetna and healthcare clinics under its roof.
But the company has had to lower earnings forecasts several times since late last year, and shares have fallen about 20% this year to date. The S&P 500, meantime, is up nearly 21%.
At the heart of its recent struggles is the company’s Medicare business, the private version of the federal program offered by CVS’s Aetna subsidiary.
Aetna took a bold plunge this year, offering enticing perks to lure seniors to its products, and it enrolled hundreds of thousands of new members. They have run up higher medical costs than the company predicted, however, while federal regulatory policies have squeezed Medicare insurers.
CVS has said it is changing its approach and expects improved results in its Medicare business next year. It has also promised $2 billion in cost cuts, and Monday disclosed a round of layoffs affecting about 2,900 people.
But the strategic review is raising broader questions about the structure of today’s CVS. The company was built around the promise that its drugstores could be used to deliver care in a cheaper, more efficient way, bringing down costs for its insurance arm and improving the health of its members.
More recently, CVS has played down that idea, buying clinic operator Oak Street Health to be a primary-care vehicle. But that deal, which cost $10.6 billion, brought on board a money-losing asset that is also closely focused on the Medicare business at a time when it is facing major challenges.