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An 800-Pound Gorilla In A Drugstore

05 December 2017 by lberuti

Since Amazon acquired Whole Food Market Inc this summer, retailers have been all over the place. Take SPLS (Staples) for instance. Even if its 5-year risk premium is off its widest level at 644bps – it traded above 800bps a few weeks ago -, it has still risen more than threefold since the beginning of the year. The foray in food-retailing could only be the first step of a much more ambitious plan though. The internet giant has applied for licenses to become a wholesale drugs distributor. It is probably one of the reasons CVS ( CVS Health Corp ) decided to move for AET ( Aetna Inc ) in deal worth roughly $70Bln. The rationale is to use the US pharmacy chain’s 9,700 outlets to improve access to preventive care and cut back on some emergency room visits by AET’s members with medical coverage. The deal which comprises a stock component (30%) and a cash component (70%) will be financed with a mix of cash and debt. That prospect initially sent CVS’s risk premium 4bps wider to 70bps on Friday when it was first rumoured, but it closed today at 61bps. The transaction had been anticipated and some investors were happy to book profit on their short risk positions on a name that was trading at 50bps five weeks ago.