CVS Health Explores Potential Breakup Amid Investor Pressure: Report

The company has been holding discussions with its financial advisors about a potential split of its pharmacy chain from its insurance unit, sources familiar with the matter told Reuters. The plan, which is said to be in its early stages, has been discussed with CVS’s board of directors, though no final decision has been made. According to Reuters, CVS is also weighing whether its pharmacy benefits management (PBM) unit, which handles drug benefits for health plans, should remain under the retail division or be part of the insurance arm if a split occurs. If this plan goes ahead, CVS could transform into two publicly traded companies.

Such a breakup would mark a reversal of CVS’s $70 billion acquisition of Aetna, a major health insurance provider, which was completed in 2017. The move aimed to combine CVS’s vast retail pharmacy operations with Aetna’s health insurance expertise, creating a diversified healthcare giant. However, the company has struggled in recent years, prompting it to reconsider this integrated model.

A CVS spokesperson did not directly comment on whether the company is actively exploring a breakup but emphasized that management is continually evaluating strategies to create value for shareholders. “We remain focused on driving performance and delivering high-quality healthcare products and services enabled by our unmatched scale and integrated model,” the spokesperson said, according to Reuters.

The potential reorganization comes as CVS Health faces a challenging period, compounded by mounting investor pressure, notably from Glenview Capital. In August, the company slashed its 2024 earnings outlook for the third straight quarter, a sign of the operational challenges it is grappling with. CVS’s current market value is estimated at $79 billion, and the company is carrying long-term debt of approximately $58 billion.

As per Reuters, CVS cut its annual profit forecast to $6.40 to $6.65 per share, a reduction from its previous expectation of at least $7.00 per share. Analysts from TD Cowen highlighted in a note that while CVS’s growth target for 2025 remains attainable, there are concerns about the company’s performance in 2024, as well as uncertainty surrounding its Medicare Advantage bids.

CVS, like other major health insurers, has been impacted by rising medical costs, particularly in its Medicare business for older Americans. This led to the departure of Brian Kane, who headed CVS’s Aetna unit, after underperformance in the Medicare division. In response, the company launched a $1 billion cost-cutting initiative.

CVS’s challenges are mirrored across the health insurance industry, with companies like UnitedHealth Group and Humana also grappling with elevated medical costs. The broader pressures facing CVS have been reflected in its stock performance, with shares down nearly 25% this year, significantly underperforming the S&P 500, which has risen by 21%.

CVS is currently trading at a lower valuation compared to many of its competitors. According to data analyzed by LSEG, the company trades at seven times earnings before interest, taxes, depreciation, and amortization (EBITDA), while rivals like UnitedHealth and Cigna are trading at 14 and nine times EBITDA, respectively.

CVS’s CEO Karen Lynch, who previously led the Aetna unit, is temporarily overseeing the insurance business along with Chief Financial Officer Tom Cowhey, as the company looks to steer through these difficult times.