Reuters notes that the deal between Aetna and Humana “will push Aetna close to Anthem Inc.’s No. 2 insurer spot by membership and would almost triple Aetna’s Medicare Advantage business”, but adds that the agreement still faces antitrust scrutiny.
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After the acquisition is completed, Aetna will become the largest provider of Medicare Advantage coverage. Three major health insurers, including United Health Group Inc, each with annual revenues worth over a $100 billion, would rule the industry if Cigna and Anthem were to ink their deal. The company has a market cap of $43.8 billion.
Analysts have said that M&A activity in the healthcare sector had been waiting for last week’s Supreme Court ruling on Obamacare, which upheld key subsidies that underpin the reform and thus gave more certainty to healthcare insurers.
While the big insurers are getting bigger with most of their revenue accounted for between employer, Medicare and Medicaid plans, regional and state-based nonprofits still prove competitive, especially when it comes to employer-based coverage.
Humana president and CEO Bruce Broussard said: “Aetna and Humana share a strong commitment to improving the health and well-being of consumers, whatever their needs and wherever they are on their lifelong health journey”.
As Aetna Inc. (NYSE:AET) acquires Humana Inc.
Wall Street analysts and some antitrust experts have said they expect the combination will be approved, although regulators may ask for some divestitures.
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.
The combined company would cover more than 33 million people.
The New York Times reported that Aetna and Humana’s combined revenues is around $115 billion this year alone. Insurers are working to develop more apps and other tools that customers can use to shop for health care, since plans are exposing customers to bigger medical bills through high deductibles and other insurance expenses.
Health insurers are eager to do more business with government payers, partly because of a Medicaid expansion fostered by the health care overhaul and Medicare Advantage’s surging enrollment. The price of Humana shares, in particular, bolted past $200 in May after the Wall Street Journal reported that the insurer was a takeover target.
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Under the deal, Aetna will pay $125 in cash and 0.8375 Aetna shares for each share held, a 23 per cent premium to the stock’s yesterday closing price. The cash and stock purchase consideration carried a premium of 22.6% over Humana’s last closing price of $187.57 apiece on Thursday July 2. A combined Aetna-Humana would be the second-largest insurer by revenue. Aetna Chief Executive Mark Bertolini will serve as chairman and CEO of the combined company. Centene closed the deal with Health Net Inc.
