The CVS Health Corp, known for its role in the American healthcare sector, is currently under significant pressure. This has led the organization to contemplate a move that might not only change the landscape of healthcare in America but also derail the path of the company itself. Simply put, CVS might be considering a breakup.
CVS Health Corp is an integrated pharmacy health care provider, with a vast network of more than 9,900 retail locations and over 1,100 walk-in medical clinics. The pressure on CVS at this time revolves around the company’s notable multi-dimensional structure and operation. Across its three business units Include Retail Pharmacy, Pharmacy Services, and healthcare benefits. There is a call for the company to divide these units into separate entities to direct focus and to optimize performance.
The first layer of pressure comes from the shareholders. The notion is that this breakup could potentially unlock hidden value and yield higher stock prices. This might make sense as CVS’s stock has seen underperformance in comparison with the broader market, and so a potential breakup might hold the appeal of realization of alienated assets and a resultant increase in the stock value.
However, it’s important to realize that breaking up a large company like CVS involves numerous potential risks and challenges. Firstly, each separated entity may struggle to stand alone without the synergies they currently enjoy. For example, the Pharmacy services segment may struggle due to its lower profit margin when compared to the Retail Pharmacy segment. Without the combined power of CVS’s units, it may turn out to be unable to meet competitive pricing and could end up floundering without the support of the other profitable divisions.
Secondly, CVS has heavily invested over the years in integrating its divisions, notably with its $70 billion acquisition of Aetna. This intended to create a healthcare powerhouse offering an integrated suite of health services under one umbrella. A breakup at this juncture would mean discarding the progress they have made in their strategic integration efforts in terms of capital and time. This move could translate into financial losses, given the expenses tied to business separation, including administrative, separation, franchise tax, legal costs, and debt refinancing, among others.
There is also the risk of customer erosion. At the heart of CVS’s integrated model is the convening power of coupling different healthcare services, which provides a more satisfying service experience for their customers. If the company separates and loses this advantage, customers could shift towards other consolidated providers that offer one-stop health services.
Another key concern is employee morale