US health insurer Aetna to buy Humana Inc in a $37 bn cash-and-stock deal

03 Jul 2015

US health insurer Aetna Inc today struck a deal to buy its smaller rival Humana Inc for about $37 billion, in a cash-and-stock deal.

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 total transaction values Humana at $230 a share based on Aetna's yesterday's closing price.

Post closing, Aetna's shareholders would own about 74 per cent of the combined company, while Humana stockholders will own the remaining 26 per cent.

''The complementary combination brings together Humana's growing Medicare Advantage business with Aetna's diversified portfolio and commercial capabilities to create a company serving the most seniors in the Medicare Advantage program and the second-largest managed care company in the United States,'' said Aetna in a statement.

The combined company would have projected 2015 operating revenue of around $115 billion, with approximately 56 per cent from government sponsored programs, including Medicare and Medicaid.

The combined company will also have over 33 million medical members, which includes Humana's 3 million TRICARE members, under a program of health care coverage for military families and retirees administered by the US Department of Defense.

''The acquisition of Humana aligns two great companies and will significantly advance our strategy of more effectively serving members in a rapidly changing health care industry,'' said Mark Bertolini, Aetna chairman and CEO.

''This combination will allow us to continue to invest in excellent service for our members and strengthen our partnerships with providers to deliver high quality care at an affordable price,'' he added.

With a market cap of $28.1 billion, Louisville, Kentucky-based Humana is the third-largest health insurance company in the US with over 13 million customers.

It has over 52,000 employees and posted net income of $1.1 billion in 2014 on revenues of $46.3 billion.

Founded in 1853, Hartford, Connecticut-based Aetna is a managed health care company selling consumer directed healthcare insurance plans and related services, such as medical, pharmaceutical, dental, behavioural health, long-term care, and disability plans.

Its customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labour groups and expatriates.

It generated net profit of $2 billion last year on revenues of $52.7 billion. The company has a market cap of $43.8 billion.

The proposed acquisition comes amid a consolidation drive among health insurers and health care companies in the US in order to cut costs due to the President Barrack Obama's changed Affordable Care Act.

Centene Corp, a Medicaid-focused company that provides services to government healthcare programs yesterday agreed to buy Health Net Inc. for about $6.3 billion, while Cigna Corp last month rejected a $47 billion takeover bid from Anthem Inc.