UPDATE 7-Aetna to buy Humana for $37 bln in largest insurance deal

3 Jul 2015 | Author: | No comments yet »

Aetna To Buy Humana For $35 Billion.

PRELUDE:The deal is to be the biggest ever in the health insurance industry, but it could be overshadowed by a rush to consolidate by major players in the business Aetna Inc agreed to buy Humana Inc, the second-largest provider of private Medicare insurance in the US, for US$37 billion in cash and stock to broaden its healthcare coverage.(CBS/AP) — Aetna will spend about $35 billion to buy rival Humana and become the latest health insurer bulking up on government business as the industry adjusts to the federal health care overhaul.

The transaction values Humana at US$230 per share based on Thursday’s closing price for Hartford, Connecticut-based Aetna, the companies said in a statement yesterday. The proposed cash-and-stock deal, announced early Friday, would make Aetna a sizeable player in the rapidly growing Medicare Advantage business, which offers privately run versions of the federally funded health care program for the elderly and some people with disabilities. The combination also would bolster Aetna’s presence in the state- and federally funded Medicaid program and Tricare coverage for military personnel and their families. The deal will face antitrust scrutiny but if it goes through it would dwarf the previous largest insurance deal announced just this week, where Swiss property and casualty giant ACE Ltd (ACE.N) announced it was buying Chubb Corp (CB.N) for $28 billion. Medicare membership is projected to rise to 68.4 million in 2023, up 26 percent from this year, according to the US Centers for Medicare & Medicaid Services.

Analysts have said that M&A activity in the healthcare sector had been waiting for the outcome of last week’s Obamacare ruling, which upheld key subsidies that underpin the reform and thus gave more certainty to healthcare insurers. Friday’s deal comes two years after Aetna completed another push into government business with the $6.9 billion acquisition of Coventry Health Care, which administers Medicaid coverage and offers Medicare Advantage plans. Antitrust authorities, who were aggressive in their review of the failed deal between Comcast CMSAO.O and Time Warner Cable (TWC.N), are expected to scrutinize how the combination of insurers will affect competition for each line of insurance: Medicare, Medicaid for the poor, individual insurance, commercial insurance for small and large businesses and the large employer business. Wall Street analysts and some antitrust experts have said they expect the combination will be approved, although regulators may ask for some divestitures.

Cigna Corp last month rejected a US$47 billion bid from Anthem Inc, saying the offer was not in the best interests of shareholders and Anthem executives were not fit to lead a merged insurance giant. These multibillion-dollar deals offer an infusion of new business at time when growth has slowed in the biggest part of their business, employer-sponsored health coverage. Others have said it is unclear that this group of regulators will stick to the usual review playbook for such a large deal and may add other restrictions. Anthem has offered to buy Cigna Corp to create the largest insurer in the country, toppling UnitedHealth Group Inc Media reports have also said UnitedHealth could be eyeing Cigna and Aetna.

The Justice Department, which reviews insurance mergers, will scrutinize deals city-by-city to see if the combination would have a monopoly in any metropolitan area, said Andre Barlow, a veteran of the department who is now at Washington law firm Doyle, Barlow and Mazard PLLC. Operating revenue is expected to be about $115 billion this year, with approximately 56 percent from government sponsored programs including Medicare and Medicaid.

They also improve their technology and can ultimately save money by combining the back-office functions of two companies and cutting overlapping jobs. The impact on consumers can be murky and likely won’t be felt for at least a year, because insurers have already finalized most of their plans for coverage that starts in January. Aetna shareholders would wind up owning about 74 percent of the combined company, and Aetna’s leader, Mark Bertolini, would serve as chairman and CEO. Humana’s sale has been anticipated since May when it was first reported that Cigna Corp (CI.N) and Aetna were interested, and multiple sources confirmed to Reuters that the company was entertaining offers.

Humana, based in Louisville, Kentucky, has been under pressure for more than a year from investors, who include activist fund Glenview Capital Management, to produce higher returns.

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