CVS splits into two companies, undoing $78B Aetna merger

CVS Health plans to split into two separate public companies by the first half of 2028, reversing its $78 billion acquisition of Aetna and dismantling the vertically integrated healthcare conglomerate it built in 2018, CNBC reported.

The separation will split CVS’s roughly 9,000 retail pharmacies from its insurance business and pharmacy benefit manager Caremark, one of the nation’s three largest PBMs. The insurance and PBM company will retain the CVS Health name and be run by current CEO David Joyner. The retail pharmacy company will be called CVS Pharmacy and be led by Prem Shah, currently group president of CVS Health. Existing shareholders will own stock in both companies after the split.

Shares closed more than 12% lower on the announcement, despite CVS posting third-quarter earnings and revenue that topped Wall Street expectations. Total sales climbed to $108.40 billion from $102.87 billion in the prior-year period. The stock has jumped roughly 70% since Joyner took the helm in October 2024, bringing the company’s market value to $117 billion.

Joyner told CNBC’s Squawk on the Street that the decision comes from a position of strength, pointing to recovery in Aetna’s Medicare business and solid performance in retail pharmacy. The company has been pursuing $2 billion in cost cuts, store closures, and efforts to rein in Medicare Advantage costs. “It’s all about the strength of the business that affords us the opportunity to make what we think are the right strategic decisions for the future of this company,” Joyner said.

The breakup reverses the central strategic logic of the Aetna deal. CVS bought the insurer in 2018 to create a one-stop health destination where the pharmacy, the insurer, and the PBM all operated under one roof. The theory was that vertical integration would lower costs by aligning incentives across the prescription drug supply chain. Seven years later, the board has concluded that the integration created more problems than it solved.

The financial breakdown shows why. The pharmacy business generated $37.66 billion in 2025 sales. The insurance unit booked $36.29 billion in revenue. The healthcare services segment, which includes Caremark and Oak Street Health, generated $51.24 billion. Each business is large enough to stand alone, and each faces different competitive pressures that are easier to address without the others. Retail pharmacies compete with Walgreens and online retailers. Insurers compete with UnitedHealth and Humana. PBMs face bipartisan scrutiny in Washington over opaque pricing practices and conflicts of interest.

The political pressure on PBMs is intense. Republicans in Tennessee and Arkansas have passed laws banning co-ownership of PBMs and pharmacies, according to CNBC’s coverage. Those laws have been challenged in court by CVS and other companies, but the direction is clear. Legislators in both parties view vertical integration in pharmacy benefits as a conflict of interest that raises drug prices. Splitting the PBM from the pharmacy removes the conflict and may preempt stricter regulation.

Leerink Partners analyst Michael Cherny told CNBC the split shows the stability of the pharmacy business, which has won market share from competitors and is seeing gross margins stabilize thanks to CostVantage, a new reimbursement model CVS introduced last year. “This business is a much different business from the one that’s been considered three years ago, five years ago, 10 years ago, where there had been a litany of headwinds that the pharmacy just couldn’t overcome,” Cherny said.

What I think

The 12% stock drop is the market saying it does not believe the spinoff will create value. That is the wrong read. The CVS conglomerate was built on a theory that vertical integration would lower healthcare costs by aligning the incentives of the pharmacy, the insurer, and the PBM. The theory failed. Drug prices did not fall. Medicare Advantage costs spiraled. The stock underperformed for years until Joyner took over and began taking the conglomerate apart. The split is the logical conclusion of that process, and the market should be rewarding it, not punishing it.

The market’s concern is that the retail pharmacy will lose its competitive advantage without a captive PBM. Joyner says the synergies will be preserved through commercial agreements between the two companies, which is plausible but unproven. The PBM negotiates drug prices on behalf of insurers and employers. The pharmacy fills the prescriptions. If the two are separate companies, the PBM can still direct prescriptions to the pharmacy through its network, and the pharmacy can still fill them. The integration was never about operational efficiency. It was about market power, and the market power came from the PBM’s ability to steer volume to its own pharmacies.

That market power is exactly what legislators are targeting. The Tennessee and Arkansas laws banning PBM-pharmacy co-ownership are designed to break the steering loop. If CVS splits voluntarily, it gets ahead of the regulation and can negotiate the terms of the separation on its own timeline. If the regulation forces a split, the terms are dictated by legislators. The voluntary split is the rational move, and the 12% drop is the market pricing in the loss of market power that the regulation was going to take anyway.

The two businesses will have different investment profiles. The insurance and PBM company will be a high-margin, capital-light business with steady cash flows and regulatory exposure. The retail pharmacy will be a lower-margin, capital-intensive business with real estate and labor costs. Different investors will want each one. A REIT investor who wants the pharmacy real estate cannot buy CVS today because the insurance business dilutes the exposure. A healthcare investor who wants the PBM cannot buy CVS because the retail drag obscures the PBM’s economics. The split unlocks value by letting each business be valued on its own merits.

The risk is execution. Corporate separations are complex, and the CVS split involves separating IT systems, supply chain contracts, and shared services that have been integrated for seven years. The timeline of 2028 gives them 18 months, which is tight. The $2 billion in cost cuts Joyner has been pursuing will need to be allocated between the two companies, and the allocation will be contentious. The pharmacy gets the store closures. The insurance company gets the Medicare Advantage fix. Neither side will want the costs that do not fit neatly into one business.

The precedent is not encouraging. Other large healthcare conglomerates that have split up, including the planned separation of GE’s healthcare business, have taken longer and cost more than projected. CVS is doing this from a stronger position than most, with a stock up 70% and earnings beating estimates. But the market’s 12% verdict is a reminder that undoing a merger is harder than doing one, and the value creation is theoretical until the two companies actually trade separately.