Inside CVS Health, a small group of top executives spent months engaged in a strategic review that developed into a secret plan: a decision to split up the $400 billion healthcare giant, hiving off its ubiquitous pharmacies.
It was an unlikely and radical step. The stores, with CVS's signature red-letter logo, weren't only how Americans thought of CVS but also the heart of its identity as a healthcare giant. Chief Executive David Joyner, a longtime veteran at the company, publicly rejected a split when he landed the top job in 2024.
This year, the C-suite's annual planning exercise delivered a different verdict. The company should break off its drugstores from the Aetna health-insurance unit and Caremark pharmacy-benefit manager. The breakup, revealed Tuesday, will put Aetna and Caremark into one company, and the approximately 9,000 retail pharmacies into another.
The logic: Its balance sheet was strong enough to support the two resulting companies, and the breakup would create more agile, focused firms. "It basically gives you confidence and strength about how each of the businesses are going to perform," Joyner said in an interview.
The board supported the move. CVS wanted to get ahead of dynamics reshaping the healthcare market. Regulators appeared increasingly hostile to healthcare conglomerates.
The breakup is a stunning reversal of a strategy that the company originally said would reduce healthcare costs and improve care by uniting insurance with its legacy retail pharmacy business. It also promises to unwind one of America's healthcare behemoths and potentially shake up where and how patients get their medicines.
Regulators and lawmakers have shown signs of growing hostility to healthcare conglomerates like today's CVS, including state laws designed to split pharmacies from pharmacy-benefit managers. One of those state laws, in Tennessee, is set to take effect in mid-2028, after the CVS breakup is scheduled to occur.
The news of the split broke on Election Day, as a wave of Democratic candidates were voted in, many with promises to try to bring down the cost of healthcare.
Wall Street doesn't like it. Despite earnings that beat analyst expectations, CVS shares dropped more than 12% Wednesday, the biggest one-day decline since January. The company's valuation plunged more than $14 billion.
Among investor concerns are worries about the future of a pure-play pharmacy company, despite CVS's recently improved retail results, and questions about whether the broken-up company might lose some financial advantages.
"Virtually all the feedback is negative/doubting/questioning why now," wrote Leerink Partners analyst Michael Cherny, who said he felt the reaction was overblown.
Joyner on Wednesday framed the divorce as a forward-looking business move that will better position the two companies for growth in a rapidly changing healthcare market. The products that CVS has created as a combined company can continue, he told analysts, while the smaller companies will be better able to partner with other firms.
The drugstores, which had been firewalled from the company's drug-benefit unit, can now work with other healthcare payers and "leverage our footprint in very different ways," said Prem Shah, the CVS executive who will lead the post-spinoff pharmacy firm.
Founded as the Consumer Value Store selling health and beauty products from a single location in Massachusetts in 1963, the company, renamed CVS, catapulted up the ranks of retailers as healthcare grew into a bigger and bigger business. It sought to move into more lucrative sectors in more recent years, first paying around $21 billion for Caremark in 2007.
The current CVS is the result of a nearly $70 billion merger in 2018 with Aetna.
Executives back then said the deal would position the company to tackle two of the biggest issues affecting healthcare: soaring spending and access to care, particularly for chronic conditions. Analysts said it might better position the company to negotiate with powerful drugmakers.
Yet the combination didn't click with the company's customers. Increasing numbers of patients shopped on the internet, rather than stopping by bricks-and-mortar drugstores. Lawmakers and regulators scrutinized the business practices of prescription-benefit managers like Caremark. Healthcare costs kept rising, and employers weren't sold on the promise of fused insurance, drug-benefit and pharmacy functions.
"They've never been able to prove why this added business advantage for" clients such as large employers, said Adam Fein, president of Drug Channels Institute. The breakup will allow the pharmacy unit to negotiate better deals with competitors to CVS's pharmacy-benefit manager, he said.
Behind the scenes, company officials were re-evaluating the setup. In 2024, repeated earnings shortfalls led to a plunging stock price and pressure for change from activist hedge fund Glenview Capital Management. The board began considering a shake-up. It engaged bankers as part of a study of the company's options.
Eventually, the board decided to oust its then-CEO and bring in Joyner, a CVS veteran who vowed to keep the company intact while fixing its operations. He had worked at CVS or predecessor companies, including Aetna and Caremark, nearly his entire career.
Glenview founder Larry Robbins joined the CVS board himself. But his firm had publicly said it wasn't pushing for a breakup. Instead, he supported share buybacks, according to people familiar with the matter. Robbins left the board in August.
The shift that put a split back on the table was a financial turnaround at Aetna and recently improved results at the retail pharmacies. "The thing that we didn't have two years ago is the financial flexibility to be able to run and operate these businesses," Joyner said.
CVS's healthcare benefits segment, which includes Aetna, had revenue of $143 billion last year. The unit that includes the company's drugstores had $139 billion in revenue, while the segment that includes Caremark had $190 billion. Board members, meanwhile, were concerned about a range of issues including mounting regulatory pressure, people familiar with the deliberations said.
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