CVS Health weighs retail pharmacy spin-off amid pressure on PBM-insurer ownership

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CVS Health retail spin-off

Highlights

CVS Health is considering spinning off its 9,000-store retail pharmacy unit, which generates about a third of CVS's projected $417 billion 2024 revenue.
Regulatory pressure is rising, with Tennessee enacting and Arkansas attempting similar bans on common ownership of PBMs, insurers, and pharmacies, while bipartisan U.S. legislation is reintroduced.
CVS shares have more than doubled from their December 2024 low to a $116.9 billion market cap as Aetna's turnaround, cost controls, and retail improvements drive performance.

Break-up plan centers on retail pharmacy separation

As first reported by the Financial Times, CVS is discussing plans to spin off its retail pharmacy division into a separately listed company while keeping Aetna and Caremark together under one corporate entity.

The proposal would effectively unwind CVS's $78 billion acquisition of Aetna in 2018, which created a healthcare group combining an insurer, a pharmacy benefit manager, and a nationwide drugstore chain. Under the plans under discussion, the retail unit's roughly 9,000 stores are projected to generate about a third of CVS's $417 billion in revenue this year.

The structure and timing of any transaction remain unsettled and could still change. CVS did not immediately respond to a request for comment.

Regulatory pressure and turnaround shape the outlook

The review comes as pharmacy benefit managers and health insurers face mounting scrutiny over common ownership structures. CVS is contesting state efforts to bar companies from owning both PBMs and pharmacies, with Arkansas and Tennessee among the first states to advance such measures.

Earlier this year, Tennessee passed the Fair Rx Act, which bans pharmacy ownership by companies that operate both a PBM and an insurer, with the law set to take effect in 2028. CVS and Cigna have sued to block the measure, while in Arkansas a judge has blocked a similar law pending further review. In Washington, Senator Elizabeth Warren and Senator Josh Hawley have also reintroduced bipartisan legislation to prohibit PBM and pharmacy co-ownership.

At the same time, CVS's market position has improved under chief executive David Joyner, who took the role in October 2024. A turnaround at Aetna, stronger cost controls, higher U.S. government payment rates for Medicare insurance plans, and better performance from the retail pharmacy business have helped lift the shares, leaving the company's market value at $116.9 billion at Tuesday's close, more than double its December 2024 low.

The group has also been reshaped by investor pressure and acquisitions made under former chief executive Karen Lynch. Activist hedge fund Glenview Capital took a 1% stake in September 2024, a move that preceded Lynch's departure and changes to the board, while Signify Health and Oak Street Health would remain alongside Caremark and Aetna under the structure being considered.

Our earlier article on activist investors stepping up pressure on Big Yellow explained how Irenic Capital Management and Ancora Holdings built sizeable stakes and urged the UK self-storage group to review strategic options, including a potential sale, amid claims the shares were undervalued. We noted that the push intensified as the company traded near multi-year lows despite solid results, against a backdrop of broader consolidation across UK listed real estate.

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