CVS Health Will Split by 2028 After $69 Billion Aetna Deal

By Olivia Hart

CVS Health said Wednesday it will split into two publicly traded companies by 2028, unwinding the structure behind its $69 billion Aetna merger. Aetna and the pharmacy benefits business will remain under CVS Health, while CVS Pharmacy will operate the retail stores and pharmacies.

The company paired the announcement with third-quarter results. CVS Health did not disclose breakup costs, debt allocation, governance terms, or a date within the 2028 outer limit.

Why is CVS splitting?

Analysts were surprised by initial reports of the transaction. Mizuho Securities analyst Ann Hynes linked the likely motive to mounting legislative and legal pressure on vertically integrated healthcare companies, especially pharmacy benefit managers, or PBMs.

Hynes told investors Tuesday: “While the rationale behind the potential breakup remains unclear, we suspect the decision is largely driven by mounting legislative and legal pressures surrounding vertically integrated healthcare companies, particularly PBMs, and to unlock the value of the health insurance business.”

Washington’s scrutiny focuses on PBMs’ perceived role in rising healthcare costs. The split would leave those businesses in the same company as the health insurer, so the structure alone does not remove the regulatory issue.

The breakup may respond to political pressure, but CVS Health has not confirmed that rationale.

What led to the 2017 merger?

CVS Health agreed in 2017 to buy Aetna in a $69 billion merger, one of the most consequential healthcare deals of the decade. The proposal came amid reports that Amazon planned to enter healthcare, leaving established companies on edge.

Amazon officially entered the sector a year later through its $1 billion acquisition of online-pharmacy startup PillPack. The move was viewed as a threat to incumbent healthcare companies, and several took action to defend against technology entrants.

Against that backdrop, CVS focused on making healthcare more consumer-friendly. The company built out urgent-care and primary-care operations, including spending about $10 billion to buy Oak Street Health, which provides primary care to older adults.

The Aetna purchase formed part of a broader defense against technology entrants, not merely a pharmacy transaction.

What did the third-quarter results show?

CVS Health reported revenue of $108.4 billion, up about 5% from $102.9 billion in the same three months a year earlier. FactSet estimated $104.8 billion.

• Medical-benefit ratio: CVS reported 91.3%, compared with FactSet’s consensus estimate of 92.3%. The ratio measures how much an insurer pays for medical care, and a lower figure is better for the company.
• Adjusted earnings per share: CVS generated $2.09, against FactSet’s $1.65 estimate.
• Same-store sales: CVS pointed to a 0.6% decline, sharply contrasting with a 14.3% increase in the third quarter a year earlier. FactSet had expected a 1.4% decline.

The quarter was mixed. The medical-benefit ratio and adjusted earnings beat estimates, while same-store sales remained negative and slowed sharply from the prior year.

The numbers favor the insurance and earnings side of the business, but the retail pharmacy comparison remains weak.

How did investors react?

CVS shares fell 2.2% in premarket trading Wednesday after the company confirmed the separation plan and released third-quarter results. The initial market response was negative, though one premarket session cannot establish the breakup’s long-term value.

CVS shares have gained 14.1% so far this year. The State Street Health Care Select Sector SPDR Exchange Traded Fund is up 18.3% over the same period, leaving CVS behind the healthcare benchmark.

Investors initially marked down the announcement, but the year-to-date performance offers a more mixed signal.

What is management promising?

David Joyner, the current CEO and soon-to-be chief executive of CVS Health, said: “Our history is defined by proactively evolving to stay ahead of what’s next in healthcare, and in today’s environment, that means delivering more affordability, greater access, and a simpler experience.”

The statement commits to affordability, access and simplicity but provides no measurable targets for any of them. CVS Health also has not said when financial reporting, leadership structures or operating arrangements for the two companies will change beyond the 2028 target.

The central test by 2028 is whether the companies can operate independently while CVS Health answers for the PBM scrutiny Hynes cited. Without a breakup budget, operating deadlines or measurable customer targets, investors cannot yet test management’s promise of a simpler healthcare experience.