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CVS and Aetna Acquisition
By: Anh Nguyen, Ziqing Wang, Tom Harrity, Qianyu Lou
Agenda
Background
Logistic Deal
Analysis
SWOT
STEEP
VRIN
4. Conclusion
CVS Background-Stella
Founded in Lowell, Massachusetts, in 1963
Owed by its original holding company Melville Corportion
Rental/LTC
Pharmacy Services
Originally named the Consumer Value Store and was founded in Lowell, Massachusetts, in 1963. Melville later changed its name to CVS Corporation in 1996. "CVS" to stand for "Convenience, Value, and Service."
CVS/pharmacy is currently the largest pharmacy chain in the United States by over 9,600 locations as of 2016 and total prescription revenue
The CVS Pharmacy retail drugstores sell prescription drugs and a wide assortment of over-the-counter and personal care products, beauty and cosmetic products, and general merchandise, which we refer to as “front store” products.
The Pharmacy Services Segment provides a full range of pharmacy benefit management (“PBM”) solutions, as described more fully below, to our clients consisting primarily of employers, insurance companies, unions, government employee groups, health plans, Medicare Part D plans, Managed Medicaid plans, plans offered on the public and private exchanges, other sponsors of health benefit plans and individuals throughout the United States.
CVS Financial Overview- Stella
Look at Comcast and Amazon Presentations as sample
Atena Background- Stella
year, location
Owner
business segments
Aetna Financial Overview- Stella
Logistic Deal Anh
$69 Billions of acquisition
98% of CVS shareholders and 97% of Aetna shareholders agreed
Reshape the combined medical care provider networks
Set of unique capabilities to create a new community-based open healthcare model: easy to use and less expensive
- In Dec 2017, CVS announced it would buy Aetna for about $69 billion in cash and stock.
- more than 98 percent of CVS shareholders' ballots and 97 percent of Aetna shareholders' ballots were in favor of the deal
- reshape the consumer health care experience, putting people at the networking of health care providers to ensure they have access to high-quality, more affordable care by encouraging Aetna health plan members to use CVS’ drugstore services, prescriptions and Minute Clinics staffed by nurse practitioners.
-expanded set of unique capabilities to create a new community-based open health care model that is easier to use and less expensive for consumers
SWOT - CVS
Strengths
Good Returns on Capital Expenditure
Strong dealer community
Successful track record of integrating complimentry firms
Strong Free Cash Flow
Strong reliable suppliers
High level of customer satisfaction
High product Innovation
Weaknesses
Limited sucess outside core business
High attrition rate in workplace
Inventories are high
New entrants
Poor technologies
Weak financial planning
Good Returns on Capital Expenditure: CVS Health is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
Strong dealer community – It has built a culture among distributor & dealers where the dealers not only promote company’s products but also invest in training the sales team to explain to the customer how can extract the maximum benefits out of the products.
Successful track record of integrating complimentary firms through mergers & acquisition
Strong Free Cash Flow – that provide resources in the hand of the company to expand into new projects.
Reliable suppliers – It has a strong base of reliable supplier of raw material thus enabling the company to overcome any supply chain bottlenecks.
High level of customer satisfaction – among present customers and good brand equity among the potential customers.
Successful track record of developing new products – product innovation.
WEAKNESS:
Limited success outside core business – Even though CVS Health has faced challenges in moving to other product segments with its present culture.
High attrition rate in workforce – compare to other organizations in the industry and have to spend a lot more compare to its competitors on training and development of its employees.
the days inventory is high compare to its competitors is that CVS Health is not very good at demand forecasting thus end up keeping higher inventory both in-house and in channel>> This can impact the long term growth of CVS Health
The company has not being able to tackle the challenges present by the new entrants in the segment and has lost small market share in the niche categories.
new technologies: the investment in technologies is not at par with the vision of the company.
Financial planning is not done properly and efficiently. The current asset ratio and liquid asset ratios suggest that the company can use the cash more efficiently than what it is doing at present.
SWOT - CVS
Oportunities
New technologies
New taxation policy
Decrease cost of transportation and deliveries
Government free trade agreements
Online sales channel
Threats
Growing strengths of local distributions
Rising raw materials
Rising pay level
No regular supply of innovative products
Changing consumer buying behavior
Lawsuits in various market
the new technology provides an opportunity to CVS Health to practices differentiated pricing strategy in the new market. It will enable the firm to maintain its loyal customers with great service and lure new customers through other value oriented propositions.
The new taxation policy can significantly impact the way of doing business to increase its profitability.
Decreasing cost of transportation because of lower shipping prices can also bring down the cost of CVS Health’s products
government free trade agreement has provided CVS Health an opportunity to enter a new emerging market.
New customers from online channel – Over the past few years the company has invested vast sum of money into the online platform. This investment has opened new sales channel for CVS Health
THREAT:
Growing strengths of local distributors also presents a threat in some markets as the competition is paying higher margins to the local distributors.
Rising raw material can pose a threat to the CVS Health profitability.
Rising pay level especially movements such as $15 an hour and increasing prices in the China can lead to serious pressure on profitability of CVS Health
No regular supply of innovative products – Over the years the company has developed numerous products but those are often response to the development by other players. Secondly the supply of new products is not regular thus leading to high and low swings in the sales number over period of time.
Changing consumer buying behavior from online channel could be a threat to the existing physical infrastructure driven supply chain model.
The lawsuits in various markets given - different laws and continuous fluctuations regarding product standards in those markets.
SWOT - Aetna
Strengths
Strong market position and brand value
Cost advantage due to size
Strong generation provider network
Low ratio of loss in medicine and products
Weaknesses
Overdependence on domestic market
Inefficient cost structure of products
Bails out on all ACA marketplaces
Heavy expenses in training
One of the 3rd largest insurer in the US
Cost advantage due to size
Strong generation provider network with over 1M professionals, 5M doctors cover more than 5,700 nationwide hospital. Network provider 1.3M participating healthcare providers
SWOT - Aetna
Oportunities
New environmental policies
Economic Improvement
Similar core competencies in other products
Low inflation rate
Threats
Rule and regulatory issues (Paris agreement 2016)
Law in different countries
High competitors
Unbalanced of global workforce skills
New environmental policies – The new opportunities will create a level playing field for all the players in the industry. It represent a great opportunity for Aetna to drive home its advantage in new technology and gain market share in the new product category.
Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for Aetna to capture new customers and increase its market share.
Organization’s core competencies can be a success in similar other products field.
Lower inflation rate – The low inflation rate bring more stability in the market, enable credit at lower interest rate to the customers of Aetna.
THREAT:
Government formulates new rules and regulations such as Paris agreement in 2016 which can threat to certain existing products and reduce its earning.
Liability laws in different countries are different and Aetna may be exposed to various liability claims given change in policies in those markets.
Many competitors offer same benefits and prices
Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for Aetna in those markets.
Liability laws in different countries are different and Aetna may be exposed to various liability claims given change in policies in those markets.
Increasing trend toward isolationism in the American economy can lead to similar reaction from other government thus negatively impacting the international sales.
STEEP- Tom
Make sure you seperate each S,T,E,E,P to each slide
this slide will be general idea of each step: Do not list out too much details for each slide
we can talk about it so any details can be list the white box below
Sociocultural
Customer choice could be limited by the merger
patients could be required to use CVS MinuteClinic instead of their usual physician
People could lose trust of CVS and Aetna because it will become even more unclear what prescription medications actually cost
If all goes well, this could spur other companies in this industry to follow suit
Technological
This merger would benefit CVS by giving them access to large amounts of claims data from Aetna
The cost savings could allow the companies to fund more advancements in medical technology
Economic
Aetna and CVS claim the merger could help combat rising prescription drug prices by taking advantage of this new vertical integration
said cost synergies could amount to $750 million in second year
Conversely, if they do not lower prices of prescription drugs, the cost savings will result in a huge boost to profits
The merger could pose a major threat to small independent pharmacies if Aetna requires prescriptions to be filled at CVS
Ecological
Political/Legal/Regulatory
Antitrust laws are a factor, since CVS is the nation’s largest Pharmacy Benefit Manager and Aetna is the 3rd largest Insurer
However, it was announced the Department of Justice will not challenge the merger
The merger would “have significant anti-competitive impacts on American consumers and health care and health insurance markets”.
-California Insurance Commissioner
VRIN Analysis
Value
Value:
Conclusion- TOM
Thank you