CVS Health Corp. is reportedly reviewing its strategic options, which may include a potential breakup, according to a report by the Wall Street Journal on Monday.
The drugstore chain, known for its extensive pharmacy network and ownership of Aetna, is exploring ways to boost shareholder value amidst ongoing challenges in the healthcare and retail sectors.
While no final decision has been made, the company has enlisted bankers to assist with the evaluation process. CVS noted in a statement that its management and board are “continually exploring ways to create shareholder value,” emphasizing a focus on delivering high-quality healthcare through its integrated business model.
CVS’s review comes as the company faces significant financial pressures, exacerbated by the decline in profitability of its traditional drugstore business. The company has been scaling back its physical store presence, reducing staff, and shifting focus toward health services in an attempt to adapt to a changing market landscape.
The company has faced increasing competition from online retailers and changes in consumer behavior, which have impacted its core pharmacy business. Additionally, its health insurance arm, Aetna, has struggled with rising medical costs, particularly in its Medicare segment, leading to a sharp decline in operating income.
The Wall Street Journal also reported that hedge fund Glenview Capital Management, a major CVS investor, plans to meet with company executives to discuss ways to revitalize the company’s financial performance. Glenview has recently increased its stake in CVS, signaling confidence in the company’s potential despite recent challenges.
Shares of CVS saw a 2.9% rise in after-hours trading on Monday following news of the review. Over the past 12 months, CVS’s stock has dropped nearly 10%, while this year alone, the stock has fallen by 23%, wiping out $26 billion in market capitalization.
A significant portion of CVS’s current challenges stems from its Aetna health insurance division. Last quarter, while Aetna’s revenue grew by 21% year-over-year, its operating income dropped by 40%. The higher-than-expected medical costs associated with new Medicare enrollees, particularly seniors undergoing delayed medical procedures, have been a key issue.
In response to these financial setbacks, CVS CEO Karen Lynch has assumed direct oversight of Aetna, alongside Chief Financial Officer Tom Cowhey. This leadership shift follows the departure of former Aetna President Brian Kane after disappointing quarterly results.
As CVS continues to navigate a challenging healthcare landscape, the company has announced plans to cut costs by $2 billion through streamlining operations and leveraging new technologies such as automation. However, the company also faces external challenges, including a lawsuit from the Federal Trade Commission, which accuses CVS’s pharmacy benefit manager, Caremark, of inflating insulin drug prices.
With input from Market Watch, New York Post, and Fortune.
