By Ankur Banerjee
(Reuters) - U.S. pharmacy operator CVS Health Corp's <CVS.N> move to buy health insurer Aetna Inc <AET.N> could shore-up CVS' vulnerable pharmacy business and spur another round of dealmaking in an industry fearing Amazon's arrival, analysts said.
Shares of Aetna, the third-largest U.S. health insurer, closed down 3 percent on Friday after closing 12 percent higher on Thursday on reports of the deal. CVS Health was down 5.9 percent.
CVS Health has made an offer to acquire Aetna for more than $200 per share, or over $66 billion, making it the biggest deal of the year. [nL2N1N12JO]
"A potential combination would diversify CVS profit streams ahead of an Amazon entry and set the stage for a new healthcare-retail delivery model," Morgan Stanley analysts wrote in a note.
Amazon.com Inc <AMZN.O> is planning to move into online prescription drug sales, multiple media reports have said, potentially posing an existential threat to brick-and-mortar pharmacies.
That possibility has hit shares of most drugstore operators on fears that the online retailer would leverage its vast ecommerce platform in prescription drug sales.
"We believe CVS does need to respond to the potential threat and strike a different path," Cowen & Co analyst Charles Rhyee said in a note.
A deal would make CVS-Aetna a one-stop shop for customers' health care needs - ranging from employer healthcare and government plans to managing benefits and running drug stores.
The vertical integration of retail pharmacy, PBM, and insurers fits with broader healthcare themes of expanded access, consumerism and cost reduction, Jefferies analysts said, adding that the deal chatter was not a complete surprise.
"It would address each company's need for a fresh script."
The deal between companies in two very concentrated industries will likely prompt concern about their rivals having an access to market, or foreclosure, two antitrust expert said.
But the deal will likely win approval from antitrust enforcers because the two companies are in different businesses along the same supply chain, or a vertical merger, other experts said.
"I don't doubt that there will be a lot of people that will be concerned about such a huge deal," said Andre Barlow of the law firm Doyle, Barlow and Mazard. "But articulating an antitrust theory (to stop it) is difficult."
The two companies overlap in at least one area - providing Medicare Part D pharmacy prescription drug coverage. Analysts at Evercore ISI estimated that 23 percent of Aetna's Part D clients were in counties where there may be antitrust concerns but these could likely be remedied through asset sales.
Some analysts said the deal could also trigger a wave of consolidation across the industry.
It could be a possible catalyst for higher health insurance sector valuation, BMO Capital Markets analyst Matt Bosch said, adding that WellCare Health Plans <WCG.N>, Humana <HUM.N> and Centene <CNC.N> could be possible acquisition targets.
Aetna earlier this year scrapped plans to merge with rival Humana after antitrust enforcers said that the combination and a rival deal between Anthem Inc <ANTM.N> and Cigna Corp <CI.N> were anti-competitive.
(Reporting by Ankur Banerjee in Bengaluru; Additional reporting by Diane Bartz in Washington and Carl O'Donnell in New York; editing by Saumyadeb Chakrabarty and Cynthia Osterman)