8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 28, 2018

CVS HEALTH CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Delaware	001-01011	05-0494040
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)
One CVS Drive Woonsocket, Rhode Island		02895
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (401) 765-1500

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Item 2.01 Completion of Acquisition or Disposition of Assets

On November 28, 2018 (the “Closing Date”), CVS Health Corporation, a Delaware corporation (“CVS Health”), completed its acquisition of Aetna Inc., a Pennsylvania corporation (“Aetna”). Pursuant to the terms of the previously announced Agreement and Plan of Merger (the “Merger Agreement”), dated as of December 3, 2017, among CVS Health, Hudson Merger Sub Corp., a Pennsylvania corporation and a wholly-owned subsidiary of CVS Health (“Merger Sub”), and Aetna, Merger Sub merged with and into Aetna, with Aetna continuing as the surviving corporation (the “Merger”). As a result of the Merger, Aetna became a wholly-owned indirect subsidiary of CVS Health.

At the effective time of the Merger (the “Effective Time”), each common share of Aetna (other than treasury shares held by Aetna and any shares beneficially owned by CVS Health or any of CVS Health’s subsidiaries unless such shares were owned in a fiduciary, representative or other capacity on behalf of other persons) was converted into the right to receive 0.8378 of a share of common stock, par value $0.01 per share, of CVS Health (the “Common Stock”) and $145.00 in cash, without interest thereon (together, the “Merger Consideration”). No fractional shares of Common Stock will be issued in the Merger, and Aetna’s former stockholders will receive cash in lieu of any fractional shares of Common Stock.

Each outstanding Aetna equity award that was vested or that became vested pursuant to its terms as of the Effective Time was converted into the right to receive the Merger Consideration or a payment in cash in an amount based on the value of the Merger Consideration less any applicable exercise price (except for restricted stock units held by Aetna’s former non-employee directors, which were converted into the right to receive a payment in cash in an amount based on the closing trading price of Aetna common shares on the day prior to the Closing Date). Each outstanding Aetna equity award that was not vested as of the Effective Time or that was granted after the date of the Merger Agreement was cancelled and converted into a CVS Health equity award, subject to the same terms and conditions as applied to the corresponding Aetna equity award immediately prior to the Effective Time (with the performance goals for performance-based awards deemed achieved at the higher of target or actual performance), except that the number of shares of Common Stock subject to each converted CVS Health equity award equals the product of the number of Aetna common shares underlying each such award at the Effective Time multiplied by the “Equity Award Exchange Ratio” of 2.729, which is the sum of 0.8378, plus the quotient of $145.00 divided by $76.686. The applicable exercise price of any converted Aetna equity award was also adjusted to take account of the Equity Award Exchange Ratio.

In connection with the Merger, CVS Health issued approximately 274.4 million shares of Common Stock and paid an aggregate of approximately $48.1 billion in cash to former Aetna shareholders in exchange for Aetna common shares and to former Aetna equity award holders in exchange for their vested equity awards, resulting in aggregate merger consideration to Aetna’s former shareholders and equity award holders of approximately $70 billion, calculated based on the closing price of Common Stock on November 27, 2018.

The foregoing summary of the transactions contemplated by the Merger Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, a copy of which was attached as Exhibit 2.1 to the Current Report on Form 8-K filed by CVS Health with the Securities and Exchange Commission (the “SEC”) on December 5, 2017, and is incorporated by reference herein.

The aggregate cash consideration for the Merger was financed using (i) term borrowings by CVS Health on the Closing Date of $5.0 billion consisting of the full amount of the $3.0 billion three-year tranche and the $2.0 billion five-year tranche under the term loan agreement entered into by CVS Health, the lenders party thereto and Barclays Bank PLC, as administrative agent, previously described in the Current Report on Form 8-K filed by CVS Health with the SEC on December 19, 2017, and (ii) net proceeds of the issuance by CVS Health of $1,000,000,000 aggregate principal amount of Floating Rate Notes due 2020, $1,000,000,000 aggregate principal amount of Floating Rate Notes due 2021, $2,000,000,000 aggregate principal amount of 3.125% Senior Notes due 2020, $3,000,000,000 aggregate principal amount of 3.350% Senior Notes due 2021, $6,000,000,000 aggregate principal amount of 3.700%

Senior Notes due 2023, $5,000,000,000 aggregate principal amount of 4.100% Senior Notes due 2025, $9,000,000,000 aggregate principal amount of 4.300% Senior Notes due 2028, $5,000,000,000 aggregate principal amount of 4.780% Senior Notes due 2038 and $8,000,000,000 aggregate principal amount of 5.050% Senior Notes due 2048. CVS Health did not make any borrowings under its bridge facility previously described in the Current Report on Form 8-K filed by CVS Health with the SEC on December 5, 2017 and the Current Report on Form 8-K filed by CVS Health with the SEC on October 26, 2018 (the “October 26 Current Report”) to finance any portion of the cash consideration for the Merger, and the commitments under the bridge facility, in the principal amount of $4.0 billion, expired in accordance with the terms of the bridge term loan agreement entered into by CVS Health, the lenders party thereto and Barclays Bank PLC, as administrative agent, previously described in the October 26 Current Report.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

The information set forth in Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference in this Item 2.03.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

As previously disclosed in the Current Report on Form 8-K filed by CVS Health with the SEC on October 10, 2018, the board of directors of CVS Health (the “Board”) approved an increase in the size of the Board from twelve directors to sixteen directors and appointed Mark T. Bertolini, Edward J. Ludwig, Roger N. Farah and Fernando Aguirre to the Board to fill the resulting vacancies, in each case, effective upon the Effective Time.

Effective upon the Effective Time, the Board has appointed Mr. Ludwig as a member of the Audit Committee, Mr. Farah as a member of the Management Planning and Development Committee and the Medical Affairs Committee (formerly known as the Patient Safety and Clinical Quality Committee) and Mr. Aguirre as a member of the Audit Committee and the Nominating and Corporate Governance Committee. In addition, the Board has appointed Mr. Ludwig, as well as continuing CVS Health directors Richard M. Bracken, Anne M. Finucane and Mary L. Schapiro, as members of a newly formed Investment and Finance Committee of the Board, with Mr. Ludwig designated as the chair of the new committee.

Employment Agreement with Karen Lynch

In connection with the Merger, CVS Health entered into an agreement with Karen S. Lynch to amend her current employment agreement with Aetna, effective as of the Closing Date, pursuant to which she will serve as Executive Vice President, CVS Health and President, Aetna (the “Amendment”). The employment term under the Amendment is through December 31, 2019, and will automatically extend for one additional year on December 31, 2019 and on December 31 of each subsequent year, unless CVS Health or Ms. Lynch provides notice of its or her intention not to extend the employment term. Pursuant to the Amendment, Ms. Lynch will receive an annualized base salary of $1.1 million and beginning in calendar year 2019 will be eligible to participate in CVS Health’s annual bonus plan with a target annual cash bonus opportunity of 150% of her base salary.

Ms. Lynch will be eligible to receive annual equity awards and to participate in CVS Health’s long-term incentive program. In addition, her target Long Term Incentive Plan (LTIP) award opportunity will be $3 million for the 2018-2020 award cycle. This LTIP award will be delivered in the form of performance stock units (“PSUs”) and will vest on April 1, 2021, subject to achievement of the applicable performance goals.

Pursuant to the Amendment, Ms. Lynch will be eligible to receive a one-time supplemental long-term incentive award for the 2018-2020 award cycle at a target award value of $2.25 million, which will be delivered in the form of PSUs and vest on April 1, 2021, subject to achievement of the applicable performance goals. Ms. Lynch will also receive a one-time cash sign-on bonus of $2.5 million and a one-time sign-on equity award with a grant date value of $2.5 million, which will vest on the third anniversary of the grant date, subject to the terms of the Amendment and the applicable award agreement (collectively, the “Sign-On Awards”). Ms. Lynch will be required to repay the sign-on cash bonus and will forfeit the sign-on equity award if CVS Health terminates her employment for “Cause” or if Ms. Lynch resigns without “Good Reason” (each, as defined) within two years of the Closing Date. If Ms. Lynch’s employment is involuntarily terminated by CVS Health other than for Cause or if Ms. Lynch terminates her employment for Good Reason within two years of the Closing Date, any severance payments owed to her would be reduced by a percentage of the value of the Sign-On Awards, depending on the timing of her termination of employment.

In connection with the Amendment, Ms. Lynch also entered into CVS Health’s form of restrictive covenant agreement for executives.

Item 7.01 Regulation FD Disclosure

A press release related to the matters described in Item 2.01 of this Current Report on Form 8-K is included in Exhibit 99.1. The information in Exhibit 99.1 of this Current Report on Form 8-K is being furnished, not filed. Accordingly, the information in Exhibit 99.1 of this Current Report will not be incorporated by reference into any registration statement filed by CVS Health under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated by reference.

Item 9.01 Financial Statements and Exhibits

(a) Financial Statements of Business Acquired.

The financial statements required by Item 9.01(a) of Form 8-K will be filed by amendment to this Form 8-K no later than 71 days after the date this initial report on Form 8-K must be filed.

(b) Pro Forma Financial Information.

The pro forma financial statements required by Item 9.01(b) of Form 8-K will be filed by amendment to this Form 8-K no later than 71 days after the date this initial report on Form 8-K must be filed.

(d) Exhibits

Exhibit No.	Description
99.1	Press Release dated November 28, 2018.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		CVS Health Corporation
Date: November 28, 2018	By:	/s/ Colleen M. McIntosh
		Colleen M. McIntosh
		Senior Vice President, Corporate Secretary and Assistant General Counsel

EX-99.1

Exhibit 99.1

    

CVS Health Completes Acquisition of Aetna, Marking the Start of Transforming

the Consumer Health Experience

Combined company brings together capabilities of two leading organizations to establish innovative

health care model

Care delivery will have a local focus that will make a complicated system simpler for all, helping

people achieve better health at lower cost

Combination expected to generate significant value for shareholders through synergies and

revenue-enhancing initiatives

Woonsocket, RI (November 28, 2018) – CVS Health (NYSE: CVS), a company that is leading the transformation of health care, today announced that it has completed its acquisition of Aetna (NYSE: AET), establishing CVS Health as the nation’s premier health innovation company.

“Today marks the start of a new day in health care and a transformative moment for our company and our industry,” declared CVS Health President and Chief Executive Officer Larry J. Merlo. “By delivering the combined capabilities of our two leading organizations, we will transform the consumer health experience and build healthier communities through a new innovative health care model that is local, easier to use, less expensive and puts consumers at the center of their care.”

Added Merlo, “As the front door to quality health care, our combined company will have a community focus, engaging consumers with the care they need when and where they need it, will simplify a complicated system and will help people achieve better health at a lower cost. We are also leading change in health care by challenging the status quo with new technologies, business models and partnerships. In doing so, we will continue to deliver on our purpose of helping people on their path to better health.”

The combined company will connect consumers with the powerful health resources of CVS Health in communities across the country and Aetna’s network of providers to help remove barriers to high quality care and build lasting relationships with consumers, making it easier for consumers to access the information, resources and services they need to achieve their best health.

Access is a critical component of building a simpler and more responsive and affordable health care experience for consumers. New products and services developed by the combined company will be broadly available to the health care marketplace, regardless of one’s insurer, pharmacy benefit manager (PBM) or pharmacy of choice. Additionally, CVS Health offerings, including retail pharmacy services, specialty pharmacy and long-term care, walk-in clinical services and PBM services, will continue to be fully accessible to other health plans. Aetna members will also continue to have a broad network of pharmacies, including community-based independent pharmacies, available to fill their prescriptions. CVS Pharmacy will continue to participate within the pharmacy networks for other PBMs and health plans.

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“By fully integrating Aetna’s medical information and analytics with CVS Health’s pharmacy data, we can develop new ways to engage consumers in their total health and wellness through personal contacts and deeper collaboration with their primary care physicians,” Merlo said. “As a result, we expect patients will benefit from earlier interventions and better-connected care, leading to improved health outcomes and lower medical costs.”

Coordination among physicians, other health care providers and caregivers, and the health care professionals at CVS Health, combined with expanded health screenings and advanced connected devices, can help providers predict and prevent major health events before they occur by, for example, identifying pre-diabetes symptoms or the warning signs of a heart attack. This will be done by remotely monitoring key health vitals or helping to ensure patients with chronic diseases take their medications as prescribed, which can improve patient health and avoid costly adverse events.

“Health care delivery is changing before our eyes and we are excited to be in the vanguard of that change. With a physical presence in almost every community across the country, we have the unmatched ability to meet consumers where they are and provide the care and services they need either face-to-face or with the unique set of virtual and physical delivery service capabilities that extends our physical presence in real-time to meet their needs,” said Merlo.

First Phase of New Programs and Services for Consumers Getting Underway

CVS Health has begun to put the foundational pieces of its new health care model in place and, in the coming months, will introduce new programs and services designed to increase access to care, improve health outcomes and reduce medical costs for all consumers. In particular, these programs will target better, more efficient management of chronic disease using the networks, technology and the people of the combined company.

Enhanced health services in the community will include a range of services focused on self-management for patients with chronic conditions, expansion of services at MinuteClinic, nutritional and behavioral counseling and benefit navigation support, as well as assistance with durable medical equipment, digital health apps and connected devices.

Among other activities, CVS Health will build on its successful Project Health screening events at CVS Pharmacy and Aetna’s commitment to building healthier communities to offer new preventive health screenings in communities that are identified as high-risk for certain health challenges. These community-based programs will aim to improve patients’ health outcomes through expanded preventive health screenings and support in the diagnosis, treatment and management of chronic diseases that can be effectively treated with prescription drugs and enhanced care management, including high cholesterol, high blood pressure and diabetes. CVS Health will work with local community partners to provide patients who are diagnosed for the first time with the follow up they need. To support these communities and newly diagnosed patients, MinuteClinic will also be introducing newly expanded chronic care management services.

Additionally, CVS Health is developing innovative new medical cost reduction programs to improve medication adherence and avoid hospital readmissions and unnecessary emergency room visits. This will include timelier and more comprehensive medication reviews as well as expanded services and hours at select MinuteClinic locations to reduce inappropriate emergency room use.

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Transaction and Closing Details

Under the terms of the transaction, each outstanding share of Aetna common stock is being exchanged for $145.00 in cash and 0.8378 shares of CVS Health common stock. CVS Health is not issuing any fractional shares in the transaction. Instead, the total number of shares of CVS Health common stock that each Aetna shareholder is entitled to receive is being rounded down to the nearest whole number, and each Aetna shareholder is entitled to receive cash for any fractional share of CVS Health common stock that the Aetna shareholder is otherwise entitled to receive.

The transaction values Aetna at $212 per share or approximately $70 billion. Including the assumption of Aetna’s debt, the total value of the transaction is $78 billion. The combined company’s shares are listed on the New York Stock Exchange under the ticker symbol “CVS.” The Aetna brand name will continue to be used in reference to the health insurance products. Going forward, Aetna will operate as a stand-alone business within the CVS Health enterprise and will be led by members of its current management team.

As a result of the acquisition, shareholders are expected to benefit from a number of outcomes, including enhanced competitive positioning; the delivery of more than $750 million in synergies in 2020; and a platform from which to accelerate growth. The roadmap for value creation over the longer term has the potential to deliver substantial incremental value through the development of products and services that provide the opportunity to generate significant new growth opportunities aimed at reducing medical costs, growing membership and enhancing revenues.

CVS Health funded the cash portion of the acquisition through existing cash on hand and debt financing. In anticipation of the closing of the acquisition, in March 2018, CVS Health issued an aggregate of $40 billion of unsecured senior notes at a favorable, weighted-average blended rate of approximately 4.19%. The notes have maturities ranging from 2 to 30 years. Additionally, in December 2017, CVS Health entered into a $5 billion unsecured term loan agreement. The term loan facility under the term loan agreement consists of a $3 billion three-year tranche and a $2 billion five-year tranche. The term loan facility allows for borrowings at various rates that are dependent, in part, on the Company’s debt ratings and require the Company to pay a weighted average quarterly commitment fee, regardless of usage.

In connection with the acquisition, on October 10, 2018, CVS Health announced that it had entered into an agreement with the U.S. Department of Justice (DOJ) that allowed it to proceed with the acquisition of Aetna. As part of the agreement reached with the DOJ, Aetna entered into an asset purchase agreement with a subsidiary of WellCare Health Plans, Inc. (NYSE: WCG) for the divestiture of Aetna’s stand-alone Medicare Part D prescription drug plans, which have an aggregate of approximately 2.2 million members. The divestiture transaction is expected to close within the next few business days. Aetna will provide administrative services to and will retain the financial results of the divested plans through 2019. The acquisition of Aetna was also subject to certain state regulatory approvals which have all now been obtained.

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About CVS Health

CVS Health is the nation’s premier health innovation company helping people on their path to better health. Whether in one of its pharmacies or through its health services and plans, CVS Health is pioneering a bold new approach to total health by making quality care more affordable, accessible, simple and seamless. CVS Health is community-based and locally focused, engaging consumers with the care they need when and where they need it. The Company has more than 9,800 retail locations, approximately 1,100 walk-in medical clinics, a leading pharmacy benefits manager with approximately 93 million plan members, a dedicated senior pharmacy care business serving more than one million patients per year, expanding specialty pharmacy services, and a leading stand-alone Medicare Part D prescription drug plan. CVS Health also serves an estimated 39 million people through traditional, voluntary and consumer-directed health insurance products and related services, including a rapidly expanding Medicare Advantage offering. This innovative health care model increases access to quality care, delivers better health outcomes and lowers overall health care costs. Find more information about how CVS Health is shaping the future of health at https://www.cvshealth.com.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of CVS Health Corporation. By their nature, all forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons as described in our Securities and Exchange Commission filings, including those set forth in the Risk Factors section and under the section entitled “Cautionary Statement Concerning Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q.

Investor Contact:

Mike McGuire

401-770-4050

Michael.McGuire@CVSHealth.com

Media Contact:

Carolyn Castel

Carolyn.Castel@CVSHealth.com

401-770-5717

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