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Investors Are Wary the FTC Could Try to Block CVS, Amazon Deals

CVS Health has two acquisitions waiting to close.

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Stephanie Keith/Bloomberg

Investors appear increasingly uncertain about whether regulators will stand in the way of big healthcare deals, including those struck by
CVS Health

A week after CVS (ticker: CVS) announced a $10.6 billion deal to buy the primary care provider
Oak Street Health
(OSH) for $39 per share, shares of Oak Street are trading at $35.52—a discount of nearly 10%.

“I think the discount vs. deal price is reflecting some nervousness by investors about the regulatory review process,” Evercore ISI analyst Elizabeth Anderson told Barron’s on Thursday, citing a February report in The Wall Street Journal that the FTC is preparing a potential antitrust suit against

A number of big healthcare services deals are now waiting to close, and some appear to be undergoing deep looks from regulators. In addition to Oak Street, that list includes Amazon’s (AMZN) $3.9 billion acquisition of the primary care chain One Medical, which trades under the name 1Life Healthcare, and CVS’s acquisition of
Signify Health

The aggressive position taken by the FTC in recent years on tech mergers has drawn widespread attention. But investors shouldn’t miss the regulatory action in healthcare services.

In the One Medical deal, Amazon agreed to pay $18 per share, but One Medical shares have dropped from $17.25 since the deal was announced to a recent $15.10. The recent dip in One Medical shares came following a report in early February that the FTC had hired outside economists to review Amazon’s acquisition of the company.

“We are likely to have a long time… before the deal closes,” William Blair analyst Ryan Daniels wrote of the One Medical acquisition in a note out on Tuesday.

On Wednesday, an Amazon spokesperson told Barron’s that the company continues “work cooperatively with the FTC in their reviews of this transaction.”

Daniels wrote that the regulatory concerns around the One Medical deal likely relate specifically to patient privacy issues, rather than broader antitrust concerns. He was skeptical that it could close this year.

“It may be some time until investors formally learn of the FTC’s intentions (likely this spring),” Daniels wrote. “Amazon could decide to litigate and in turn could further extend the deal closing until 2024, in our view.”

Also waiting to close is CVS’s acquisition of
Signify Health
(SGFY), a healthcare services company that assesses patients’ home health needs. CVS said in September it will pay $30.50 per share; Signify shares were trading at $29.10 immediately after the announcement, and are now down to $28.75.

In October, CVS said that the Justice Department had sent a second request for information about the deal. At the time the agreement was announced, CVS said it planned to close the transaction in the first half of 2023. The company’s CFO, Shawn Guertin, reiterated that guidance this month, saying he expects the deal to close in the second quarter of the year.

There’s also
UnitedHealth Group
‘s (UNH) $5.4 billion acquisition of the healthcare services provider
LHC Group
(LHCG), which was initially expected to close in 2022.
now says the deal will close early this year, after the FTC asked for additional materials.

As for the Oak Street acquisition, CVS and Oak Street say that they expect the deal to close this year, but Raymond James analyst John Ransom wrote in a note last week that the timing “remains uncertain given the current landscape of the FTC/DOJ.”

The 10% spread between the current price of Oak Street shares and the deal price could narrow as the Signify deal closes.

One piece of potentially relevant history: As Daniels wrote in his Tuesday note, UnitedHealth’s deal to acquire the healthcare technology company Change Healthcare took 22 months to close, amid regulatory scrutiny. The Justice Department sued to block the deal; it finally closed after UnitedHealth Group beat the DOJ in court.


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