CVS to break up $117 billion business, separating pharmacies from insurance; shares fall

By Amina Niasse and Sneha S K

Nov 4 (Reuters) - CVS Health said on Wednesday it will split in two, separating its retail pharmacies from the Aetna insurance business and pharmacy-benefit operations in a major unwinding of the $117 billion healthcare conglomerate it spent years building.

CVS shares plunged 12.6% to $79.94 after the announcement.

CVS Health CEO David Joyner said that in the past two years its chain of 9,000 pharmacies, Caremark pharmacy benefit manager and Aetna health insurance businesses had made marked improvements, making the new structure possible.

For the last eight quarters, the company has beaten Wall Street expectations, he said. It did so again on Wednesday, reporting a third-quarter profit of $2.09 per share, easily topping analysts' average estimate of $1.65, according to LSEG data.

“The businesses are running really well,” Joyner said in an interview. “We've been afforded the opportunity to make different decisions than we, than I could have two years ago.”

Years of industry consolidation have ratcheted up pressure on CVS and others from critics who say the acquisitions created conflicts of interest between the businesses and have contributed to rising US spending on healthcare, the highest in the world.

"Vertical integration at the (managed care organizations) has been coming under fire by regulators and customers alike in recent years. CVS has the most exposure to vertical integration in the industry," Morningstar analyst Julie Utterback said, adding that "management probably thought that it was a better time to move somewhat preemptively rather than wait for a legal or legislative decision that forced their hand."

The company forecast 2027 adjusted earnings of at least $8.65 per share, ahead of analysts' estimates of $8.53 per share.

The planned breakup is the latest in a series of major corporate splits this decade as companies look to simplify operations and boost shareholder returns.

SPLIT IN 2028

CVS said it planned to complete the separation in the first half of 2028. The split brings CVS back to being a standalone pharmacy chain for the first time since 2006, when it purchased the Caremark PBM. It would go on to make a stream of acquisitions over 20 years, including the $78 billion purchase of health insurer Aetna in 2018.

After the split, CVS Health will be led by Joyner and include Aetna, Caremark, its specialty pharmacies and the healthcare services companies Oak Street Health and Signify Health.

Prem Shah, who currently runs pharmacy, related businesses and healthcare delivery, will become CEO of CVS Pharmacy, which will also include its MinuteClinics, mail-order pharmacies and the consumer platform called Health100, which helps patients manage care using data across insurers, providers and pharmacies.

Joyner said when he took over two years ago, the company had been projecting a 5% decline in its pharmacy business. He said CVS improved store technology to increase capacity and changed its prescription drug reimbursement model, allowing it to offer lower prices while generating profits on both branded and generic medicines.

He also has made improvements with Aetna, which had missed financial targets after miscalculations in its Medicare Advantage government health plans for people aged 65 and older or with disabilities.

Health insurers have grappled with elevated medical costs across Medicare, Medicaid for low-income Americans, Affordable Care Act plans and commercial insurance as consumers increased their use of healthcare services after the COVID-19 pandemic.

CVS drugstores have also been grappling with payment pressures and competition from Amazon and other online pharmacies. A shift toward prescription delivery has reduced store visits that generate additional purchases.

The challenges underscore the increasingly difficult economics of large US drugstore chains.

Faced with similar challenges, rival Walgreens sold its Boots pharmacy business and was acquired by private equity firm Sycamore Partners last year following a prolonged sale process.

CVS had explored options including a potential breakup in 2024, Reuters reported at the time, as the healthcare giant grappled with challenges across its businesses.

"Improving financial results probably helped with the timing of the move — better to move from a place of strength than a place of weakness," said Morningstar's Utterback.

CVS raised its 2026 adjusted profit forecast to at least $8.20, but said it was maintaining a cautious view for the remainder of the year in light of continued elevated medical cost trends and other macro issues.

Upon completion of the separation, CVS Health shareholders will own shares in both companies.

(Reporting by Siddhi Mahatole, Aishwarya Venugopal and Sneha S K in Bengaluru; Amina Niasse in New York,; Editing by Shinjini Ganguli, Caroline Humer and Bill Berkrot)