Nearly two months after CVS Health (
CVS) cut its
annual guidance for the third quarter in a row, reports have surfaced that the healthcare services provider is exploring options to create shareholder value, including
its potential breakup. The news, which comes in the wake of major investor Glenview Capital Management pushing for changes, sent CVS shares
up about 2% premarket on Tuesday.
Strategic review: CVS is reportedly weighing options to turn around its business, including splitting its drugstore chain and its insurance business Aetna, and potentially housing its pharmacy benefits manager unit Caremark in either company after the potential split. However, discussions with financial advisers are ongoing, and no plans have been finalized. Meanwhile, CVS will also
lay off 2,900 employees, under 1% of its workforce, to further cut costs. The move will impact corporate roles, and won't affect front-line jobs in stores, pharmacies and distribution centers.
Backdrop: The strategic review follows a reported meeting between
top investor Glenview and CVS' leadership on Monday. The hedge fund, which owns about 1% of CVS' outstanding shares, sought to discuss potential fixes to improve the company's operations. CVS said it "maintains a regular dialogue with the investment community as part of our robust shareholder and analyst engagement program," and declined to comment on any specific discussions.
SA commentary: Investing Group Leader Edmund Ingham believes it's unlikely that a meeting with Glenview will be met with enthusiasm by CVS management, as internal plans are unlikely to dovetail with Glenview's strategy. "In terms of
breaking up the business, it is difficult to see what CVS could jettison, as finding a buyer for the retail stores could be tricky - if you don't believe me, look at the current share price of Walgreens Boots Alliance (
WBA) for guidance on how retail pharmacy store chains are performing." (
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