Tag / DOJ

by Frank Maduri

Follow Up: CVS Merger With Aetna Looks Doomed

The CVS and Aetna mega-merger in the healthcare space is, according to many trusted sources of news, doomed to be rejected in federal court. This merger has been the subject of many other pieces here on Frank’s Forum and the many aspects of this potential deal have been scrutinized.

In a prior piece, the role of the federal judge, Judge Richard Leon, was detailed with the background that he oversaw the AT&T merger with Time Warner, where he dismissed the claims of the Justice Department that it would harm competition and disrupt equal access to content made by Time Warner media properties.

In a few short months, AT&T has tried to limit content to provide an advantage to DirecTV (also owned by AT&T). The decision by Judge Leon has been criticized by numerous groups within the industry.

Then, the news that this same judge would oversee the gigantic proposed deal between CVS and Aetna. The pressure that Leon applied to CVS/Aetna was seen by many to be similar to a “make up call” in sports; where the referee knows they made a mistake earlier, so they make a different call to make up for the prior faulty ruling.

The $69 billion agreement between CVS and Aetna would be a rather landmark “make up call” and would certainly have repercussions across the industries of both healthcare and health insurance. The stock price for CVS took a tumble on Tuesday amid the reports that the court will likely submarine the planned merger.

In the center of the debate is the opinion of Judge Leon that CVS would be given an unfair advantage to their PBM business unit with the addition of over 20 million Aetna subscribers who would be pushed into an exclusivity with CVS for their prescription drug coverage. The secondary concerns have to do with prices on prescription drugs, and the Medicare Part D plans that Aetna offers.

Aetna has agreed to sell the Medicare Part D plans and has a deal in place for that which was a stipulation of the original merger agreement. The case certainly could go badly if the court reverses the ruling, and that will create uncertainty for the future of the merger.

The two parties could explore a recalibrated merger proposal making some types of concessions based on the feedback from the eventual court ruling this summer. The Department of Justice may also have some feedback in the process that would be taken under advisement by both CVS and Aetna. The DOJ could also appeal the decision of the court, though some experts feel that it could be hard to overturn the decision on appeal.

CVS is on a quest to become an elite healthcare company with the acquisition of Caremark and they seek to further transform themselves into with the merger with Aetna so that they are not reliant on just the traditional retail pharmacy channel. That is a smart strategic direction with the emergence of Amazon into the pharmaceutical and healthcare industries.

CVS was hopeful that gaining Aetna would help with the overall valuation of the company in the eyes of Wall Street. Aetna was hopeful that merging with CVS would provide them with a built-in base of consumers who would purchase healthcare products and who had a high brand loyalty to CVS.

The whole merger, and all of the time and money poured into it, which is a significant cost, is at stake. The ruling of Judge Leon will have a dramatic impact on both companies, their stock value, and the entire healthcare industry.

(Some background information courtesy of Barron’s, New York Post, and CNBC)

by Frank Maduri

Follow Up: AT&T Content Ownership & The Impact On The Consumer

The debacle which was the AT&T merger with Time Warner, which is now known under the name Warner Media, has been a topic featured on this blog several times in the past. The detrimental effect it would have on competition in the media landscape is also a topic that has been part of my prior work on this merger.

It was widely reported that an outage of HBO occurred last week for customers of Dish and Sling TV services. It is hard to believe that AT&T / Warner Media had no role in engineering this outage to damage the competition with AT&T owned DirecTV standing to gain potential subscribers as an outcome.

This type of disruption or potential withholding of content is precisely what the Department of Justice was concerned about relative to AT&T merging with Time Warner. This potential misuse of the control of content or content ownership to damage the competitors of DirecTV was a central focus of the DOJ lawsuit in this merger earlier this year.

In that court proceeding, one judge made the decision to allow the merger to proceed, no jury was involved. The judge sided with AT&T in “buying” their version of the case that they wanted to reinvent AT&T for the long haul. The government argued that the merger would impact competition because it would give AT&T too much influence and control over content. The government argued that AT&T would use that control to provide favorable pricing for their own enterprise, DirecTV, at the expense of Dish, Fios, Comcast, and other cable television providers. It was a conflict of interest that the government was concerned about with this merger.

The exact situation has played out and could become a factor when the content of certain premium HBO programs comes up for distribution as well as the March Madness NCAA basketball tournament which Turner Sports (part of Warner Media) has the rights to broadcast. The new AT&T/Warner Media could jack up the prices on that content to the competition, while at the same time create advantageous promotional pricing for DirecTV in order to siphon off subscribers from their competitors.

DirecTV Now is a service that allows people to stream content without having a satellite dish attached to their residence. The service is opening up a new subscriber base to the DirecTV platform with less equipment and front-end costs. The development is one that can be viewed as positive, and the reviews are good overall for the service to this point. In some ways, this advancement will help competition because it gives the consumer another option if they are not a candidate for a satellite dish and they may feel locked in to one cable television provider.

However, this service can become problematic if AT&T influences the content available on this service and withholds that content from their competition in some way. This ties in to the other big media news of the Warner Media streaming app-based service that is built and being pushed to launch ahead of the long-awaited Disney app launch. Warner Media is trying to beat Disney to the punch on getting their streaming service up and going in the marketplace.

The question within the media industry at this point is whether that is a smart strategy by Warner Media if they rush the service to market and then have some glitches that lead to customer disappointment.

In the event that the outage or the disruptions that have involved Warner Media content and the competition for DirecTV in the marketplace are, in fact, valid that is a sad state of affairs for the whole industry. This has led to some analysts with greater knowledge of the industry space than myself to produce some insightful commentary pieces on the potential for the Department of Justice to reintroduce legal proceedings to reverse the merger.

That would certainly create a ripple effect throughout the media, telecommunications, and cable/satellite TV services industries all at the same time. The counterpunch to that effort was a group of businessmen writing op-ed type pieces of their own to implore the court system to not entertain the reversal of the merger. It is going to get interesting.

The issue in my own view of this situation is not the streaming services being offered to provide more choices to the customer. The issue is that you cannot set the playing field up in a way that is going to unfairly treat competition in the marketplace or set the rules up so that one party gains from them and everyone else is at a competitive disadvantage. That is what I want all the readers out there to think about in this circumstance; because those consequences will be felt across other industries that will have a much greater impact on your life than just being able to watch a program on your television set.

(Some background courtesy of Reuters, CNBC, CBS MArketwatch, and CNN)