Dan Haar: Why CVS nixed NYC in favor of Hartford for Aetna
Updated 7:14 pm, Friday, January 12, 2018
It should have surprised no one that CVS said Friday it will maintain Aetna operations in Hartford and will look to the capital city “as the future location of our center of excellence for the insurance business.”
The drugstore chain, set to swallow Aetna in a $69 billion deal pending approvals, made the announcement in the same week New York City officials said their deal for Aetna’s headquarters was off. And the news came one day after CVS boss Larry Merlo met separately with Gov. Dannel P. Malloy and Hartford Mayor Luke Bronin.
It all makes sense if you look at the real reason Aetna was moving its headquarters to downtown Manhattan near Google. It wasn’t business strategy, but rather a personal preference by Aetna CEO Mark T. Bertolini to suit his global, high-profile lifestyle. He already had a large residence on the West Side, loves the New York Rangers and craves national media attention.
Now the question is whether CVS-Aetna will not just maintain but expand in Connecticut from 5,800 people. No word on that Friday from CVS, Malloy or Bronin. Catherine Smith, the state economic and community development commissioner, said it’s too soon for an incentive package offer as CVS gets to know the Connecticut scene, including an influential insurance regulation agency.
“If that kind of opportunity arises here, certainly we’d have discussions about incentives,” Smith said.
For CVS and its pharmacist-CEO Merlo, Connecticut balances cost — more than Oshkosh but less than New York or Boston — with technology and management talent, which is more abundant than, say, in Woonsocket, R.I., where CVS Health has its corporate office.
As for that much coveted tech culture, Connecticut is showing strong signs of life lately, especially in insurance and financial services. We’ve seen commitments by Travelers and other large companies as well as a burgeoning software and IT industry from Stamford to Hartford.
Just underway is InsureTech, a very promising downtown Hartford “accelerator” for hand-picked start-ups in the industry that will move to Connecticut and receive coaching and maybe investment from Connecticut companies.
Bet the life insurance policy that Malloy and Bronin — who’s exploring a run for governor — both told Merlo about the accelerator Thursday.
All of this matters to Fairfield and New Haven counties because a healthy CVS-Aetna presence in Hartford means a healthy capital city, and we’re all seeing how much that matters now that Hartford is a financial ward of the state. Besides, it could be a signal of how other companies manage their affairs in Connecticut.
The state must hammer away at its fiscal crisis, which didn’t go away — not by a longshot — in a week that started with a $900 million tax windfall and ended with good news from CVS.
But beyond what’s happening in Connecticut, the CVS announcement was also not a surprise because of what we’ve seen from Merlo. His drop-ins with Malloy and Bronin fell into the tradition of outreach by conquering CEOs.
“It could be that part of what they’re trying to do is calm those nerves of employees,” said Smith, who was involved in two big mergers as an executive at Aetna, then ING. “Part of what you want to do is to create a comfort with the existing employees at the acquired company.”
Where did we see that before? Oh yes, in July 2015, when Aetna reached a $37 billion deal to acquire fellow insurer Humana, based in Louisville. Bertolini rushed off to the home of the Kentucky Derby, which he had attended a few weeks earlier, and assured Louisville that Aetna-Humana would maintain the whole local workforce of 12,000, and maybe then some.
Back in Connecticut, Bertolini was stone-faced when it came to assurances for the company’s home state. And he repeatedly spurned Malloy’s and Smith’s requests for meetings.
By contrast, CVS on Friday said it will “continue to be headquartered in Rhode Island.” Malloy, of course, offered up the idea of a corporate headquarters here, to no avail.
As for the New York headquarters move, Merlo must have taken one look at Bertolini’s Ninth Avenue lease near the Meatpacking District — with an asking price of $150 a foot, or $21 million a year, according to Crain’s New York, for just 250 people — and said, “Not on my watch!”
If there’s one thing an executive knows if he oversees 10,000 retail locations, it’s the value of a lease. Overpay, and you land in bankruptcy court faster than a crooked Trump hotel deal in Atlantic City.
If anyone still thinks the whole game is about low taxes, here’s the math: That New York lease would have cost about $84,000 per employee. Hartford property taxes — the highest in the state and said to be an economic death-knell — amount to $1,400 per Connecticut worker at Aetna. Yes, there are other property costs, but they don’t add up to the tens of thousands per worker.
So Hartford is a fine fit for the buttoned-down Merlo, who’s way less focused on public image and new-age culture than Bertolini, Aetna’s chief yoga swami. And it’s still a good fit for the 165-year-old insurer itself, where some were scratching their heads after Bertolini’s June announcement about New York.
The folly of New York was that it was fine for a digital innovation lab if Aetna wanted to tap into a mature tech culture. Companies such as United Technologies Corp. have done just that (in Brooklyn) without throwing a hissy fit in their hometown.
But the headquarters? Unlike General Electric, a company on the ropes that really does need to reinvent itself and therefore moved its head office to Boston, Aetna’s progress is tied to health policy and the sort of backbone technology development that doesn’t depend on marketing glitz.
Merlo clearly recognized that. It’s the reason we should believe his pledge to maintain Connecticut operations won’t erode, as so many corporate promises have.
“I’m thrilled that CVS has confirmed that Aetna will continue to call Hartford home, building upon a strong legacy of success dating back to 1853,” Malloy said in a written statement. “CVS Health has an incredible track record of corporate stewardship, and we welcome their leadership.”