CVS gets preliminary OK from DOJ for acquisition of Aetna—with some conditions
A blockbuster deal that has the potential to transform the nation’s health care industry has been given the green light by the U.S. Department of Justice.
CVS Health announced that it has entered into an agreement with the DOJ that allows it to proceed with its proposed $69 billion acquisition of Aetna. DOJ clearance is a key milestone toward finalizing the transaction, which is also subject to state regulatory approvals, many of which have already been granted, according to CVS. The deal was also approved on the condition that Aetna sells its Medicare Part D prescription drug plan business — a move that Aetna has already announced. (WellCare Health Plans is taking over the plan.)
The acquisition is expected to close in the early part of the fourth quarter of 2018.
“DOJ clearance is an important step toward bringing together the strengths and capabilities of our two companies to improve the consumer health care experience,” said CVS Health president and CEO Larry J. Merlo. “We are pleased to have reached an agreement with the DOJ that maintains the strategic benefits and value creation potential of our combination with Aetna. We are now working to complete the remaining state reviews.”
The acquisition, which was announced in December 2017, would create a health care giant composed of the nation’s third-largest health insurer and a nationwide network of 9,700 CVS retail pharmacies, 1,100-plus walk-in medical clinics and a pharmacy benefits manager with nearly 90 million plan members.
“CVS Health and Aetna have the opportunity to combine capabilities in technology, data and analytics to develop new ways to engage patients in their total health and wellness,” Merlo said. “Our focus will be at the local and community level, taking advantage of our thousands of locations and touchpoints throughout the country to intervene with consumers to help predict and prevent potential health problems before they occur. Together, we will help address the challenges our health care system is facing, and we’ll be able to offer better care and convenience at a lower cost for patients and payors.”
Following the close of the transaction, Aetna will operate as a standalone business within the CVS Health enterprise and will be led by members of its current management team.
Target firing on all cylinders amid record store traffic, surging online sales
There was no stopping Target Corp. in its second quarter — online or off — as it reported skyrocketing digital sales and “unprecedented” store traffic growth.
The discounter’s stellar quarter came as the chain has focused on revamping its business to better compete in an omnichannel environment. Target’s hefty investments (totaling some $7 billion) in expanding its digital operations, remodeling its existing stores, rolling out new smaller-format locations, and enhancing its merchandising mix with an array of new house brands appear to be paying off.
Target’s net income totaled $799 million, or $1.49 per share, compared with $671 million, or $1.21 a share, a year ago. Excluding one-time items, Target earned $1.47 a share, which was 7 cents ahead of analysts’ expectations.
Total revenue rose 6.9% to $17.8 billion, ahead of analysts’ expectations of $17.28 billion. Apparel and electronics ranked among the strongest categories.
Same-store sales increased 6.5%, which was Target’s highest comp growth in 13 years. The increase was fueled by store traffic growth of 6.4% — the strongest since Target began reporting the metric in 2008.
“We are seeing a great consumer response … unprecedented traffic,” Target CEO Brian Cornell told CNBC’s Becky Quick on Wednesday. “As we go back and look, we’ve never seen traffic like this.”
Analyst Neil Saunders, managing director of GlobalData Retail, commented that Target’s investment in its exclusive brands and stores is one of the underpinnings of its success.
“The elevated experience at both newer and refurbished shops is driving both customer traffic and conversions, which is one of the reasons why shops contributed 4.9 percentage points to comparable sales growth,” he said. “For non-food in particular, the shopping experience is more pleasant and engaging with many more points of inspiration and interest.” (For more analysis, click here.)
Target was also on fire online. Comparable digital sales jumped 41% and contributed 1.5 percentage points of comparable sales growth. Digital sales represented 5.6% of total sales.
The retailer has said it plans capital expenditure of $3 billion this year on its supply chain, online delivery, its in-house brands and the ongoing merging online and in-store shopping.
“We laid out a clear strategy at the beginning of 2017, and throughout this year we’ve been accelerating the pace of execution,” said Cornell in a statement. “We’re on track to deliver a strong back half and we’ve updated our full year guidance to reflect the strength of our business and the consumer economy.”
“As we look ahead to 2019, we expect to achieve scale across the full slate of our initiatives — creating efficiencies and cost-savings, further strengthening our guest experience and positioning Target to continue gaining market share,” Cornell said.
For full-year 2018, Target said it now expects adjusted EPS of $5.30 to $5.50, compared with the prior range of $5.15 to $5.45.
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Walmart soars with fastest sales growth in a decade, big online jump
Walmart showed its might in the second quarter, with earnings and sales that topped the Street amid surging digital sales and a jump in store sales.
The discount giant’s revenue rose 3.8% to $128.03 billion in the quarter ended July 31, beating analysts’ estimates for $125.97 billion. Same-store U.S. sales increased 4.5%, led by grocery, apparel and seasonal; foot traffic was up 2.2%. Grocery sales rose the most in nine years, helped by improved fresh-food offerings. Same-store sales at Walmart’s Sam’s Club rose 5%, the biggest increase in five years.
Walmart has been making significant investments online — from its improved e-commerce site to expanded grocery delivery options — and the results appear to be paying off. Online U.S. sales jumped 40% during the second quarter, and the retailer reiterated it is on track to increase U.S. e-commerce sales by 40% for the full year.
In comments, analyst Neil Saunders, managing director, GlobalData Retail, called out the chain’s new website, noting it is easier to shop, has a much wider assortment, and is now more connected than ever to services like in-store pickup.
“From our data, the addition of more premium brands, including the Lord & Taylor initiative, is starting to have an impact as there has been a notable increase in the number of higher income customers visiting the site over the past couple of months,” Saunders said. “This is exactly the kind of result Walmart needs to achieve if it is to compete more effectively with Amazon.”
Walmart reported a net loss for the quarter of $861 million, or 29 cents a share, compared with net income of $2.9 billion, or 96 cents a share, a year ago. Excluding one-time items including a loss related to the sale of a majority stake in Walmart Brazil, Walmart earned $1.29 per share, which was 7 cents ahead of analysts’ expectations.
It was not all good news for the chain, however. Walmart’s margins continue to be under pressure amid investments in cutting prices, digital, store refurbishments, and increased labor and transportation costs.
“As painful as they are, the erosion of profitability and margins are necessary evils,” Saunders said. “Maintaining a price leadership position as well as ensuring the company is an omnichannel leader are clear priorities that require investment. These investments are being made and they are delivering growth, which we believe in a sign that Walmart is succeeding in securing its future as one of the world’s leading retailers.
For the full year, Walmart now expects to earn between $4.90 and $5.05 per share, which is up from a prior range of $4.75 to $5 and excluding any impact from its pending acquisition of Flipkart. It expects U.S. same-store sales to increase rise about 3%, up from a prior target of at least 2%.
“We’re pleased with how customers are responding to the way we’re leveraging stores and e-commerce to make shopping faster and more convenient,” Walmart CEO Doug McMillion said in a statement. “We’re continuing to aggressively roll out grocery pickup and delivery in the U.S., and we recently announced expanded omnichannel initiatives in China and Mexico.”
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