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An activist hedge fund manager has secured four board seats at CVS Health just weeks after the largest US drugstore operator by revenues overhauled its executive leadership.
The US healthcare group said on Monday that it would expand its board of directors to 16 from 12 under a deal with Glenview Capital Management. Larry Robbins, Glenview’s chief executive, will be one of the four new board members.
The board overhaul underscores that CVS’s recent replacement of its chief executive and the leadership change in its troubled health insurance unit, Aetna, has not been enough to stave off pressure from investors.
The healthcare conglomerate’s share price has plunged 27 per cent since the beginning of the year, drawing interest from Glenview and two other activist hedge funds, Sachem Head and Dan Loeb’s Third Point. Glenview has the largest position of the three, with a $635mn holding equivalent to 1 per cent of the stock.
“In our discussions with the leadership at Glenview, we agreed that we can deliver greater value from our integrated businesses to all of our stakeholders, including our customers, consumers, colleagues and shareholders,” CVS executive chair Roger Farah said in a statement on Monday.
Glenview hoped to push for more stability and an end to the “revolving door” of CVS leadership, said the person familiar with the matter.
Shares in the healthcare group were up 4.2 per cent in mid-morning trading in New York.
The addition of four executives to the board — healthcare-focused lawyer Leslie Norwalk, financial services executive Doug Shulman, healthcare executive Guy Sansome and Robbins — looks likely to eliminate the threat of CVS facing a more public fight. Glenview considered whether to launch a public proxy fight before the agreement was finalised, according to a person familiar with the matter.
US retail pharmacies including CVS, Walgreens Boots Alliance and the now-bankrupt Rite Aid have been punished in the public markets after years of overexpansion and pressure from rival retailers and online pharmacies. CVS has for years sought to diversify into a broader healthcare conglomerate, with its $78bn acquisition of Aetna in 2017 and subsequent purchases of care providers Signify Health and Oak Street.
Aetna now accounts for a third of CVS’s revenues. But, like insurance rivals United Health and Humana, it has been hit by soaring medical costs in its Medicare business, which offers care to people over 65 who are covered by the state-backed insurance scheme.
CVS repeatedly missed earnings guidance and earlier this year tapped advisers to consider splitting up its retail pharmacy, health insurance and pharmacy benefit manager businesses.
CVS overhauled its leadership team in October, replacing chief executive Karen Lynch with longtime executive David Joyner and appointing new leadership at Aetna. Joyner has told analysts he would “make the hard choices and take the necessary actions to drive a multiyear earnings recovery at Aetna”.
The move could also help CVS tackle challenges at Aetna, which sells medical, pharmacy and dental insurance plans. The segment’s operating income took a hit after the quality rating of its Medicare plans, which dictates bonus payments from the government to the insurer, was reduced by the federal agency that administers these “stars”.
“Today’s announcement will bulk up the number of healthcare and technology members of CVS’s board, which should add comfort to investors regarding the recovery pathway for [Aetna] as well as the longer-term strategic outlook,” Elizabeth Anderson, an analyst at Evercore, said on Monday.
