CVS Health Considers Company Split Amid Investor Pressure

By Anirban Sen
NEW YORK (Reuters) – CVS Health is exploring options to potentially break up the company, separating its retail and insurance divisions, as it aims to improve its performance amidst investor pressure.

CVS has been holding discussions with financial advisers regarding the logistics of a possible split in recent weeks. These discussions are confidential, according to sources who wish to remain anonymous.

The board of directors has been involved in talks regarding the separation of CVS’s pharmacy chain and insurance business, though no final decision has been made. The company may pursue different strategies instead.

Additionally, CVS is evaluating whether its pharmacy benefits manager should fall under the retail or insurance unit if a separation occurs, which could result in two publicly traded entities. This would effectively reverse CVS’s significant $70 billion acquisition of Aetna in 2017 during a challenging time in CVS’s sixty-year history.

A CVS spokesperson refrained from commenting on the ongoing discussions but noted that management is focused on creating shareholder value and enhancing performance in delivering healthcare products and services.

These latest talks come against a backdrop of increasing pressure from investors like Glenview Capital, advocating for operational changes following a third consecutive quarterly cut to its 2024 earnings forecast in August. CVS’s market valuation is around $79 billion, with long-term debt nearing $58 billion.

CVS recently lowered its profit forecast, estimating earnings per share between $6.40 and $6.65, down from a previous expectation of at least $7.00. Analysts have raised concerns regarding uncertainty surrounding CVS’s performance and future pricing strategies.

The departure of Aetna head Brian Kane followed underperformance in the Medicare division due to rising service costs, prompting CVS to initiate a $1 billion cost-cutting plan. Aetna contributes roughly a third of CVS’s revenue.

CVS is competing with other health insurers facing similar financial pressures. Its shares have dropped nearly 25% this year, significantly underperforming the S&P 500’s nearly 21% increase.

CEO Karen Lynch, backed by CFO Tom Cowhey, leads CVS through this tumultuous phase. The company’s current trading multiples highlight its underperformance compared to competitors like UnitedHealth and Cigna, raising questions about the future viability of its retail pharmacy business.

Established in 1963, CVS operates over 9,000 stores primarily in the U.S., growing through notable acquisitions, including Caremark and several healthcare service providers.