Aetna and Humana agree $37bn merger

September 2015 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Managed health care company Aetna Inc announced in July that it had agreed to acquire Louisville, Kentucky-based for-profit health insurance company Humana Inc for around $37bn. Once completed, the deal will created the second biggest managed care company in the US.

Under the terms of the deal, Aenta will acquire all of Humana’s outstanding shares for a combination of cash and stock valued at approximately $230 per Humana share, or approximately $37bn, based on the company’s closing price on 2 July, the day before the deal was announced. The terms of the deal, which have been unanimously agreed by the shareholders of both Humana and Aetna, will see Aetna’s shareholders own approximately 74 percent of the combined company, with Humana’s shareholders owning the remaining 26 percent. The transaction is expected to close in the second half of 2016 provided it wins regulatory approval.

According to a joint statement released by the two companies, after completion of the deal Aetna will make Humana’s Louisville base the headquarters for its Medicare, Medicaid and TRICARE businesses, and will maintain a significant corporate presence there.

“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 T. Bertolini, Aetna’s chairman and chief executive. “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. We have great respect for Humana, their talented team, their culture and their strong medical management capabilities. We look forward to working with them following the closing, as we enhance our combined portfolio of innovative health care offerings to provide significant benefits to consumers, employers and providers, and to continue delivering value for our shareholders.”

To help finance the completion of the deal, Aetna expects to issue around $16.2bn worth of new debt including term loans and commercial paper. The two companies have also suspended their respective share repurchase programmes. Aetna expects to restart its scheme six months after closing of the Humana transaction. According to Dealogic, Aetna’s loan facility is the second-largest investment-grade acquisition bridge loan to be made so far this year – only the $18bn loan acquired by AbbVie Inc was bigger.

Mr Bertolini will serve as chairman and CEO of the combined company. He will preside over a group of 16 directors – 12 taken from the current Aetna board and four from Humana.

“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,” said Bruce D. Broussard, president and CEO of Humana. “Through the use of technology and integrated services to simplify the consumer experience, the combined entity will be even more effective in meeting the health needs of many more people – especially people with chronic conditions, who will benefit from Humana’s home health, pharmacy management, and data analytics programs. The transaction is a testament to the accomplishments of Humana associates and an outstanding outcome for our shareholders, who will receive an immediate premium and the opportunity to participate in the growth potential of the combined organisation.”

But before the deal is ratified, there are a few outstanding regulatory concerns. Federal regulators in the US are expected to heavily scrutinise the deal. Mr Bertolini has noted that, according to the firm’s legal advisers, the transaction will be very “manageable” from a regulatory perspective. Yet the deal will undoubtedly draw considerable regulatory attention; the American Hospital Association (AHA) has made its concerns about the merger known. According to the AHA, the deal could potentially have implications for consumers who may face higher premiums, and there would be consequences for other insurers too. As a result, the AHA has called on both the Department of Justice and Congress to review the deal.

In the event that the deal falls through, Aetna will be required to pay a termination fee of around $1.69bn and Humana would be required to pay $1.31bn.

Richard Summerfield