With Hartford on edge about the future of Aetna here, CVS Health Corp. chief executive Larry Merlo traveled to the city in January for high-profile meetings with the governor and the city’s mayor.
But instead of ugly details about a corporation abandoning Connecticut, Merlo brought welcome news that Aetna Inc.’s headquarters would not move to New York City. It was a striking contrast to the departure of General Electric for Boston and Aetna CEO Mark Bertolini’s push to move corporate Aetna offices to New York — where state officials were largely shut out of the process.
In fact, behind the scenes, CVS merger teams had been talking with state officials for weeks before, learning about insurance regulation and the Hartford community. The discussions helped lay the groundwork that kept Aetna’s headquarters in the city where it was founded in 1853.
“Merging firms are often noncommittal about location plans in the future, but CVS has been very committed to Aetna’s presence in Hartford,” David Souder, associate dean for graduate programs at University of Connecticut School of Business, said.
Souder, who has published papers on merger and acquisition strategy, said the decision makes sense given what the combination is trying to accomplish.
“Aetna and CVS are not in the same business, but rather complementary businesses and retaining the accumulated knowledge in each firm will be crucial both for continuing business as usual and for developing new innovations that motivated the merger,” Souder said.
CVS’s $69 billion acquisition of Aetna, if approved, has the potential to dramatically reshape the health care industry. The deal could make pharmacies a fuller partner with physicians and their patients. Critical to the success of the merger, announced Dec. 3, is creating new and expanded versions of CVS’s MinuteClinics, walk-in medical clinics that operate in more than 1,000 pharmacies.
“They want to know how we approach the regulatory environment and what’s the relationship like between the company and the state,” Catherine Smith, the state’s commissioner of economic and community development, said.
Woonsocket, R.I.-based CVS said contact with regulators is a “normal part” of the approval process, and the company expects it to continue.
“We have been meeting with regulators in a number of states, including Connecticut, to explain the important benefits of the transaction for consumers and to outline how we see the combination both improving health outcomes and lowering costs,” CVS said, in an email statement.
The acquisition is full of risk as CVS jumps into insurance for the first time. And integrating the two companies will be different from anything Merlo has attempted in his 27-year career at CVS.
Smith said CVS is not only interested in insurance companies but the entire “ecosystem” that has grown up in Hartford and the surrounding region that supports the industry. Those include research institutions such as Jackson Labs, Yale and UConn, plus the law and actuarial firms that specialize in insurance, Smith said.
“From their early forays here, it has been about who is Hartford?” Smith said. “What is the community like? Getting to know their own new employees through the integration process.”
Smith, said CVS also has an open mind when it comes to Aetna’s massive campus on Farmington Avenue.
“The company is so open and willing to think about what they can do with this campus,” Smith said. “We’ve been throwing ideas at them about how there may be capacity here and maybe there are other parts of their organization that might benefit from being in this location,” Smith said.
Smith adds: “We’re suggesting to them that they could build here, and not just retain what they have.”
Smith said those discussions have not gotten into the details of how — and what lines of businesses — might accomplish that growth.
Companies involved in mergers and acquisitions affecting Connecticut business handle communication early on in different ways, Smith said.
“It’s very dependent on the company and their approach to closing deals,” Smith said. “Some companies will just tell you, ‘Just go lie down, wait until we call you.’ “
For instance, Lockheed Martin’s $9 billion acquisition of Stratford-based Sikorsky Aircraft played out differently than CVS-Aetna.
“It didn’t happen right away,” Smith said. “But several months after they closed, they came back to us and started serious conversations that ultimately led to the expansion of the plant in Stratford.”
UConn’s Souder said he believes CVS will like what it sees in Hartford and the region, the more the company learns.
“There is great talent here, with many people who have expertise in health care,” Souder said. “Brookings’ recent ranking of Hartford as the No. 4 city in the U.S. for tech-skilled workers will prove especially valuable, since the new technology will be essential to health care innovations.”
Part of the decision to keep Aetna in Hartford also is likely a practical one, with CVS wanting to hold onto the top Aetna executives.
“If you start threatening to move facilities or close facilities down, people have options, especially your best talent so sometimes people jump ship in that process, so I’m sure that’s part of their thinking.”
Smith said the decision to keep Aetna headquartered in Hartford sends a broader message.
“That’s a really big and exciting positive for the state,” Smith said, “and a reversal of the trend of people saying, ‘Oh my gosh, everyone needs to leave.’ “
