Acquisition of Aetna

6 Months Ended

Jun. 30, 2019

On the Aetna Acquisition Date, the Company acquired 100% of the outstanding shares and voting interests of Aetna for a combination of cash and stock. Under the terms of the merger agreement, Aetna shareholders received $145.00 in cash and 0.8378 CVS Health shares for each Aetna share. The transaction valued Aetna at approximately $212 per share or approximately $70 billion. Including the assumption of Aetna’s debt, the total value of the transaction was approximately $78 billion. The Company financed the cash portion of the purchase price through a combination of cash on hand and by issuing approximately $45 billion of new debt, including senior notes and term loans. Aetna is a leading health care benefits company that offers a broad range of traditional, voluntary, and consumer-directed health insurance products and related services. The Company acquired Aetna to help improve the consumer health care experience by combining Aetna’s health care benefits products and services with CVS Health’s approximately 9,900 retail locations, approximately 1,100 walk-in medical clinics and integrated pharmacy capabilities with the goal of becoming the new, trusted front door to health care.

The transaction has been accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values at the date of acquisition. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:



In millions
Cash and cash equivalents	$	6,565
Accounts receivable	4,094
Other current assets	3,894
Investments (current and long-term)	17,984
Goodwill	47,492
Intangible assets	22,571
Other long-term assets	8,249
Total assets acquired	110,849
Health care costs payable	5,302
Other current liabilities	9,990
Debt (current and long-term)	8,098
Deferred income taxes	4,295
Other long-term liabilities	13,078
Total liabilities assumed	40,763
Noncontrolling interests	320
Total consideration transferred	$	69,766

The assessment of fair value is preliminary and is based on information that was available to management at the time the unaudited condensed consolidated financial statements were prepared. The most significant open item relates to the accounting for income taxes as management is awaiting additional information to complete its assessment. Measurement period

adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date. Measurement period adjustments to assets acquired and liabilities assumed during the six months ended June 30, 2019 primarily related to additional information received related to certain valuations and contingencies and the related impact on the accounting for income taxes and goodwill. There were no material income statement measurement period adjustments recorded during the three and six months ended June 30, 2019.

Unaudited pro forma financial information

The following unaudited pro forma information presents a summary of the Company’s combined operating results for the three and six months ended June 30, 2018 as if the Aetna acquisition and the related financing transactions had occurred on January 1, 2017. The following pro forma financial information is not necessarily indicative of the Company’s operating results as they would have been had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses.



In millions, except per share amounts	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Total revenues	$	60,206		$	119,299
Income (loss) from continuing operations attributable to CVS Health	(1,940		)	(133		)
Basic earnings (loss) per share from continuing operations attributable to CVS Health	$	(1.50	)	$	(0.10	)
Diluted earnings (loss) per share from continuing operations attributable to CVS Health	$	(1.50	)	$	(0.10	)

The pro forma results for the three and six months ended June 30, 2018 include adjustments related to the following purchase accounting and acquisition-related items:


•	Elimination of intercompany transactions between CVS Health and Aetna;


•	Elimination of estimated foregone interest income associated with (i) cash assumed to have been used to partially fund the Aetna Acquisition and (ii) adjusting the amortized cost of Aetna’s investment portfolio to fair value as of the completion of the Aetna Acquisition;


•	Elimination of historical intangible asset, deferred acquisition cost and capitalized software amortization expense and addition of amortization expense based on the current preliminary values of identified intangible assets;


•	Additional interest expense from (i) the long-term debt issued to partially fund the Aetna Acquisition and (ii) the amortization of the fair value adjustment to assumed long-term debt.


•	Additional depreciation expense related to the adjustment of Aetna’s property and equipment to fair value;


•	Adjustments to align CVS Health’s and Aetna’s accounting policies;


•	Elimination of transaction related costs; and

•

Tax effects of the adjustments noted above.