Hartford, Conn.-based Aetna (NYSE:AET), one of the nation’s biggest health insurers, plans to buy fellow insurer Coventry Health Care (NYSE:CVH) in a $5.7 billion deal that will substantially bolster its Medicaid enrollment leading up to the Affordable Care Act’s Medicaid expansion.
The total transaction is valued at $7.3 billion, including the assumption of Coventry’s debt. Bethesda, Md.-based Coventry is a diversified managed healthcare company that offers a portfolio of risk and fee-based products, including Medicare Advantage and Medicare Part D programs, along with Medicaid managed care plans and group and individual health insurance.
Aetna projects that the acquisition will increase its share of revenues from government business from the current 23% to more than 30%.
Both companies’ board of directors have approved the agreement, the terms of which will give Coventry stockholders $27.30 in cash and 0.3885 Aetna common shares for each Coventry share, or $42.08 per share, based on the closing price of Aetna common shares on Friday, Aug. 17.
The national insurer expects to finance the cash portion of the transaction with a combination of available cash and by issuing approximately $2.5 billion of new debt and commercial paper. Excluding the transaction and integration costs, the deal is projected to be modestly accretive to Aetna’s operating earnings per share in 2013, with expected gains of $0.45 in 2013 and $0.90 in 2015.
By acquiring Coventry, Aetna will significantly increase its Medicaid footprint, which will create more opportunity to participate in the expansion of Medicaid and to pursue high acuity populations as they move into managed care, said the company in a statement.
“Integrating Coventry into Aetna will complement our strategy to expand our core insurance business, increase our presence in the fast-growing Government sector and expand our relationships with providers in local geographies,” said Mark T. Bertolini, Aetna’s chairman, CEO and president, in a statement. “Coventry has distinct capabilities and a local market focus that will accelerate our efforts to bring simpler, more affordable products to consumer insurance exchanges in 2014 and beyond.
The transaction is still subject to Coventry shareholder approval and regulatory review.
Written by Alyssa Gerace