August 5, 2018

Health care mergers in doubt as Amazon looms large

Health care isn't so healthy: The fates of two giant health care mergers are suddenly in question.

Drug store chain CVS wants to buy insurer Aetna, but the California Insurance Commissioner wants the Justice Department to block the $69 billion deal, citing concerns that prices will go up and competition will decrease.

Another insurer, Cigna, hopes to buy pharmacy benefits manger Express Scripts for $67 billion. However, there were reports last week that activist investor Carl Icahn has taken a stake in Cigna, with the hopes of convincing shareholders to vote against the Express Scripts merger on August 24.

Icahn reportedly thinks Cigna is overpaying. Cigna and Icahn did not respond to requests for comment from CNNMoney.

Cigna and Aetna both reported solid earnings last week -- and CVS is due to release its latest results on Wednesday morning. Investors will be eager to hear if CVS has any comment about the California Insurance Commissioner's claims. CVS and Aetna shareholders have already approved the deal.

It's still not exactly clear what regulators in Washington think about these mergers. There were reports last month that the Justice Department would likely greenlight the CVS-Aetna deal.

But two mega insurer mergers were blocked by federal judges early last year on antitrust grounds. Aetna had hoped to combine with Humana while Cigna was planning to merge with Anthem.

It's possible that antitrust officials will decide CVS-Aetna and Cigna-Express Scripts won't harm consumers given the rapidly changing landscape in health care amidst emerging competition.

Amazon is creating a health care company along with JPMorgan Chase and Warren Buffett's Berkshire Hathaway. Amazon -- who else? -- also announced in June that is buying online pharmacy PillPack, which already has pharmacy licenses in all 50 states. Shares of CVS and its rival Walgreens both plunged the day of the PillPack acquisition.

Investors are increasingly worried that Amazon, which already has turned the worlds of retail, media and cloud computing on their heads, is now looking to become a big player in health care too.

That's a key reason why CVS shares are down 10% this year. New Dow component Walgreens has fallen 7%. And the stock of drug distributor Cardinal Health, which will report its latest results Monday, has plunged nearly 20%.

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