WOONSOCKET – CVS Health Corp., as part of its continuing U.S. Securities and Exchange Commission filings related to its proposed merger with Aetna Inc., has created a set of combined pro forma financial statements.
In its filing Wednesday afternoon, CVS combined the two company’s income statements as if they had merged at the beginning of the year. Based on that assumption, the combined company would have posted revenue in 2017 of $236.7 billion. That compares with CVS’s 2017 total net revenue of $184.8 billion and Aetna’s total net revenue of $60.5 billion.
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While the individual companies posted net income for 2017 of $6.6 billion (CVS) and $1.9 billion (Aetna), the proposed combination would have had net income of $6.5 billion for the year, due to pro forma adjustments, including the elimination of $8.5 billion in pharmacy and clinical services revenue that CVS earned from Aetna in the course of the year, among other adjustments.
In addition, the earnings per share would have been adjusted not just for the diminished net income but the increased number of CVS shares post-merger. Thus, while CVS had earnings per diluted share of $6.45 in 2017, and Aetna had earnings per diluted share of $5.68, the combined entity would have posted earnings per diluted share of $4.96.
The merger of the retail and pharmacy benefits manager giant with the health insurer also would grow their combined balance sheet. While CVS had total assets of $95.1 billion at the end of 2017, and Aetna had $55.2 billion, the combined entity would have reported total assets of $204.9 billion. The major part of the difference involves the valuation of goodwill and intangible assets that a merger triggers. The deal would add $33.6 billion in goodwill (defined as the excess cost of an acquired firm over the current fair market value of its identifiable net assets) to the new company’s assets, as well as $26.7 billion in intangible assets (defined as the value of nonphysical assets, such as copyrights, patents and other such assets). In addition, Aetna would add $4.1 billion in cash and $2.3 billion in investments to CVS.
Shares of CVS fell 52 cents on Wednesday in trading on the New York Stock Exchange to $67.73 per share. Shares in Aetna increased 79 cents to $177.06 on the NYSE. Based on previous SEC filings, the deal values each Aetna share at $204.11 per share in stock and cash. The market has not brought the value of Aetna shares up to what CVS has agreed to pay for it. Thus, with 326.9 million shares of Aetna stock outstanding, the merger deal values Aetna at roughly $8.8 billion more than the stock market does.
