CVS CVS Health Corporation

By Anna Wilde Mathews 

CVS Health Corp.'s announcement Monday that former Aetna Inc. Chief Executive Mark Bertolini will leave the CVS board exposed tensions underlying one of the biggest U.S. health-care mergers.

Mr. Bertolini joined the board after the pharmacy operator paid nearly $70 billion to buy the health insurer in 2018.

The two companies promised an ambitious health-care transformation, melding their varied businesses of filling prescriptions, managing drug benefits and providing health insurance to reduce costs and improve customer experience.

Before the deal closed, Mr. Bertolini was a key voice in selling the idea that the combined company could bring major changes to health care. But afterward, Mr. Bertolini didn't retain an executive role, instead joining a board dominated by CVS directors, with the company led by CVS Chief Executive Larry Merlo.

Now, Mr. Bertolini says he is being pushed out, with the integration of the two companies still not complete. CVS said he would be leaving "following the successful integration of the Aetna business."

"I was willing to continue to serve on the board of directors in support of the most transformative effort in health care for our nation. However, the board thought otherwise," Mr. Bertolini said in an interview.

He said he would be departing when CVS was still digesting Aetna's insurance business. "Integration is far from over," he said.

Asked about his relationship with Mr. Merlo, he said, "There's always going to be a natural tension between the current CEO and the former CEO in any discussions regarding how you move the strategy forward. He's the guy in the seat, I'm not."

Mr. Bertolini made the comments shortly after CVS announced that he and two other directors won't stand for reelection. The company said it was reducing the size of its board following corporate-governance best practices.

CVS Chairman David Dorman said in a statement issued by the company that the remaining board members strongly back management and its direction.

"The integration has been a success and the board has the utmost confidence in the current management team and the progress the combined company has shown to date," a CVS spokesman said.

In 2017, the leadership of the two companies forged an unlikely alliance. Mr. Merlo, a former pharmacist who has led CVS since 2011, had overseen the company's pharmacy-benefit manager, Caremark, but didn't have a strong background in the health-insurance business.

Mr. Bertolini, a longtime managed-care executive who had been CEO of Aetna since 2010, was a high-profile corporate leader who had long spoken about his own experiences with the health-care system. And even after relinquishing his chief executive title, he kept up his public activity, including publishing and promoting a book on leadership.

The CVS-Aetna deal was always seen as a huge operational challenge, as the companies would have to pull together vastly different businesses, ranging from corner drugstores to Aetna's Medicare and Medicaid coverage.

In his book published last year, Mr. Bertolini said the merger would entail monitoring many details, requiring a "maniac with the focus, the tenacity, and the urgency to resolve them all."

But, he wrote, "There was only room for one CEO, and Larry Merlo was it. He had the bigger balance sheet, and his is the acquiring company; so he deserves to lead the new organization."

Mr. Bertolini also wrote that if Aetna had completed a planned acquisition of Humana Inc., which was blocked on antitrust grounds before the CVS deal, he would have relished leading that combined company.

Investors had mixed reactions to the CVS-Aetna deal, partly due to concerns about the obstacles to integrating the various businesses.

CVS shares fell sharply a year ago after the company issued a downbeat earnings projection. Investors pressed for more detail about the company's growth plans, and CVS promised it would return to profit growth this year, accelerating in the future. Shares have since risen as the company delivered stronger-than-expected results in subsequent quarters.

CVS is in the process of opening around 1,500 health hub stores, which are designed to offer a broader range of services than its traditional drugstores, many aimed at people with chronic illnesses such as diabetes.

George Hill, an analyst with Deutsche Bank, said investors now have enough comfort with CVS's direction that Mr. Bertolini's departure and comments won't disturb them, though he wrote that the development might raise some eyebrows.

Matthew Borsch, an analyst with BMO Capital Markets, said investors' view of CVS has brightened.

Yet, he said, Mr. Bertolini's unusual public statement, combined with the recent departure of the company's president of pharmacy, might "raise questions about whether everything is going as well as management insists."

Strong headwinds remain. CVS, like competitor Walgreens Boots Alliance Inc., faces pressure on margins in its retail pharmacy business. Also, investors have pushed down shares of insurers over political concerns, as Democratic presidential candidates advocate for a major revamp of the U.S. health-care system.

And CVS faces the threat of an activist investor as a shareholder. Starboard Value LP has taken a stake in CVS and held talks with the company, The Wall Street Journal reported in November, citing people familiar with the matter. Those talks had been amicable, but Starboard is one of the top activist firms.

--Connie Driebusch contributed to this article.

Write to Anna Wilde Mathews at anna.mathews@wsj.com

(END) Dow Jones Newswires

February 03, 2020 19:14 ET (00:14 GMT)

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