CVS Health Corp. is facing pressure from some investors to break up its businesses, a move that could lead to significant short-term gains but could also come with substantial risks. One of the key reasons why CVS is considering a breakup is its current business model. The company operates as a pharmacy, a pharmacy-benefit manager (PBM), and health insurer, leading to complex and at times conflicting roles. Splitting these businesses could enable each to thrive independently, potentially enhancing the overall performance of CVS. However, breaking up CVS would also pose some substantial risks. It would involve expensive costs, potentially leading to financial strain for the company. As for potential predators, corporations such as Walmart or Amazon might be interested in acquiring parts of the conglomerate at a bargain price, which might not be in the best interest of CVS. Moreover, the breakup could undermine CVS’s long-term strategy of becoming a integrated healthcare service provider. The company made significant investments, such as the $69 billion acquisition of Aetna, to boost its integrated healthcare services. A breakup could potentially undo these efforts, thwarting the company’s unique market position. Lastly, while financial activist investors often push for such breakups to unlock value in the short term, the trickle-down effect on the employees, customers, and the healthcare system as a whole can be unpredictable and potentially harmful. Any breakup or reorganization should be carefully considered in terms of not just its financial implications, but its wider societal impact as well.

CVS Health Corp. is currently under scrutiny from its key stakeholders who are pressuring the company to disband non-prime segments of its business. This is following a trend where large corporations consider breaking up to unlock shareholder value by making components more manageable and accountable.

CVS is an integrated pharmacy healthcare company. Its business is differentiated in three major segments: the retail/long-term care segment, the pharmacy benefits management (PBM) segment, and the health care benefits segment. As much as these segments seemingly work together to streamline CVS’s operations, key stakeholders believe that the company could be more profitable if these segments were split up.

However, a split might not be as advantageous for CVS as it seems. One key risk regards the positive synergy that exists between the different parts of the company. The interplay of these three sector branches is expected to create a unique competitive advantage vis-à-vis other, more specialized companies. Breaking up the company could mean losing this edge over competitors.

Secondly, breaking CVS Health Corp. into smaller parts could weaken each component, leaving them more susceptible to being outperformed by the competition. The PBM segment, for example, leverages its close connection with the retail segment to offer a more bundled service to its customers; the same applies to the health care benefits sector.

Also, the process of breaking up is related to high costs and could carry significant risks for the brand. The split would likely be followed by a period of serious disruption where the previously integrated services would need to adjust to their independent operations, carrying the risk that the new entities lose value rather than gaining it.

In conclusion, CVS’s breakup would not inevitably bring about the desired increased profits and value for shareholders, but could instead lead to a significant loss in company power, growth potential, strategic advantage over competitors and overall value.

So, the company’s stakeholders need to very carefully weigh the pros and cons of such a radical step before making a definitive decision.