Main CVS shareholder plans activist push, meet with execs: sources

Glenview Capital, a major CVS Health shareholder, is expected to meet with company leadership on Monday to lay out proposed fixes for the struggling business, according to people familiar with the matter, a potential precursor to an activist push.

The hedge fund has established a sizable position in the company, said some of the people. Glenview invests in a variety of sectors, but its most recent regulatory filings show it holds positions in Centene, CVS and Teva Pharmaceuticals among other names.

Specifics about Glenview’s proposals could not be learned. The Wall Street Journal first reported that Glenview would be meeting with CVS management, including CEO Karen Lynch.

A CVS spokesperson said the company “maintains a regular dialogue with the investment community as part of our robust shareholder and analyst engagement program.”

“Beyond that, we cannot comment on engagement with specific firms or individuals,” the spokesperson said.”

Shares of CVS closed about 2% higher on Monday. Before Monday’s open, the stock was down about 22% year-to-date.

The meeting with Glenview is not CVS’ first brush with an activist. Earlier this year, Sachem Head Capital Management, the well-known activist fund run by Scott Ferguson, disclosed via regulatory filings that it had amassed a position in the company.

Jeff Smith’s Starboard Value also built a stake in the company in 2019, and engaged in discussion with the company’s leadership as well.

Investor confidence in CVS has soured after three straight quarters of full-year guidance cuts.

The company’s bottom line is getting battered by higher medical costs in its insurance segment – an issue dogging the broader health-care industry as more seniors undergo procedures they had delayed during the Covid-19 pandemic.

CVS owns Aetna, the nation’s third-largest health insurer by market share, according to The American Medical Association. The company’s insurance unit includes plans by Aetna for the Affordable Care Act, Medicare Advantage and Medicaid, along with dental and vision.

In its second-quarter results in August, CVS unveiled a new plan to cut $2 billion in expenses over several years, which it said would involve streamlining operations and increasing the use of artificial intelligence, among other efforts. The company is also wrapping up a three-year plan to close 900 of its stores, with 851 locations closed as of August.

CVS is slashing less than 1% of its workforce, or roughly 2,900 jobs, as part of the new cost-cutting plan, a company spokesperson said in a statement on Monday. The spokesperson said the cuts would mainly impact corporate roles, not workers in the company’s retail stores, pharmacies and distribution centers.

The majority of impacted workers will be notified this week and will receive severance pay and other benefits, according to the spokesperson. Apart from layoffs, CVS has closed some job openings, they said.

“Our industry faces continued disruption, regulatory pressures, and evolving consumer needs and expectations, so it is critical that we remain competitive and operate at peak performance,” the spokesperson told CNBC.

The Wall Street Journal first reported the cuts on Monday.

Also in August, CVS announced a leadership shakeup based on the performance and outlook of its insurance unit. The company said CEO Lynch would replace the president of the segment, Brian Kane, effective immediately.

Meanwhile, CVS faces increased pressure in its retail pharmacy business. Reimbursement rates for prescription drugs have plunged over the last several years, while inflation and softer consumer spending are making it difficult for CVS locations to turn a profit at the front of the store.