As one of the largest retail pharmacy chains in the United States, CVS Health Corporation is no stranger to the pressures of an ever-changing financial landscape. Recent financial strains, coupled with a series of other factors, have led the company to consider a drastic move – a corporate breakup. This consideration, albeit unprecedented, is not entirely unexpected, but rather relevant when viewed under the appropriate economic microscope. However, such a decision could also unveil a host of risks that may inevitably influence the company’s future.
CVS is currently one of the most versatile entities in the health sector, offering manifold services including retail pharmacy, health insurance through its Aetna division, and various other health services. The fact that CVS can offer such varied services in a ‘one-stop-shop’ model has given it a marked advantage in the competitive health and retail market. However, the complexity of managing such a multifaceted corporation under one umbrella has placed the company under intense pressure.
A possible reason why CVS is considering a breakup lies within its Aetna health insurance division. Acquired by CVS in 2018 for an astounding $69 billion, the division was expected to create an industry-disrupting model of care with lower costs. However, the expected synergies from this deal have failed to materialize to their full potential. The integration has also proven to be more challenging than expected, with complex regulatory issues and operational hurdles.
A breakup such as splitting the health insurance division would theoretically allow the separate entities to focus on their main operations, hence improving their individual financial performance. It also could enhance sterling agility and strategic flexibility, helping them navigate the rapidly-evolving healthcare industry.
On the other hand, the potential risks of a breakup cannot be ignored. One of the integral risks is the potential loss of combinatorial benefits, effectively diluting the integrated model of CVS. For instance, CVS’s walk-in clinics could prescribe drugs that customers could then buy in the in-house pharmacy, but post-separation, there’s no certainty of retaining that seamless transition.
Further, CVS’s current model allows for easy cross-promotion of its products and services. If the corporate split leads to separate marketing departments, this synergy could be compromised, leading to a potential loss of customers who appreciated the convenience of CVS’s comprehensive services.
Additionally, a spinoff can be expensive, time-consuming, and laden with legal complexities. It also, ironically, carries the risk of increased competition as the separate entities may end up competing with each other for overlapping
