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The purchase, which will add added than 5 actor associates to Aetna's chump ranks and bifold its business administering the government's Medicaid bloom plan for the poor, comes aloof weeks afterwards battling WellPoint Inc addled a accord to buy Medicaid specialist Amerigroup Corp.
"It's about calibration — accepting analytical accumulation in Medicare and Medicaid, accepting negotiating adeptness with hospitals and added providers," said Jeff Jonas, an analyst with Gabelli Bloom and Wellness Trust Mutual Fund. "After several added well-received deals ... Aetna was accepting larboard abaft as one of the abate players. Not anymore."
Bankers and investors see the beachcomber of bloom insurer alliance accelerating added as the United States moves to apparatus President Barack Obama's healthcare overhaul.
But the law still faces cogent challenges. Republican presidential applicant Mitt Romney has vowed to cycle aback the Affordable Care Act if adopted in November, and Republican accompaniment leaders could accomplish it difficult to apparatus abounding accoutrement of the law.
The U.S. bloom ameliorate law aims to aggrandize advantage to 16 actor added Americans through abreast run allowance exchanges in anniversary accompaniment and extend Medicaid accommodation to an added 16 actor bodies by adopting banned on domiciliary income.
"The transaction boosts Aetna's brand in government programs, and adds calibration to its bartering operations, which we appearance as strategically important advanced of the accepted accomplishing of exchanges and bloom ameliorate starting in 2014," Barclays analysts said in a agenda to clients.
Aetna, the third-largest U.S. bloom insurer, will pay about $42.08 per allotment - $27.30 in banknote and 0.3885 of its accepted shares. That is a 20.4 percent exceptional over Coventry's closing banal amount of $34.94 on Friday.
Aetna Chief Executive Mark Bertolini estimated the accumulated company's 2012 acquirement at $50 billion. The deal, accepted to abutting in mid-2013, will add about 4 actor medical associates and 1.5 actor associates of Medicare Part D, which reduces decree biologic costs in the government plan for the elderly.
Aetna shares bankrupt up 5.6 percent and Coventry acquired 20.3 percent on the New York Banal Exchange.
A GROWING BUSINESS
Chief Banking Officer Joseph Zubretsky said there was abundant befalling in managing government bloom plans, alike afterwards the overhaul. Aetna's government business will annual for added than 30 percent of acquirement afterwards the deal, up from 23 percent currently.
"The acclamation and SCOTUS were not analytical to our cardinal thinking," he said in an interview, apropos to the U.S. Supreme Court's June accommodation to advocate the "individual mandate" acute that best Americans admission bloom allowance by 2014 or pay a tax. "We anticipate we had a actual acceptable befalling to accretion bigger admission to government-based revenues at valuations that were actual reasonable."
If Romney did win the White House and chaotic the healthcare law, Jonas said, Republicans' proposed changes to the arrangement would additionally beggarly affluence of business for insurers.
"The charge for calibration doesn't change," he said. "We see that with hospitals and physicians amalgamation into bigger chains as able-bodied as the insurers."
The accord should additionally admonition Aetna apply alike added access on bloom action in Washington. The Hartford, Connecticut, aggregation spent about $4 actor to avert its interests in Congress aftermost year, and $2.1 actor during the aboriginal six months of 2012, according to U.S. Senate records. Coventry spent $300,000 on lobbyists over the aforementioned 18-month period.
Their accumulated lobbying would abode them amid the U.S. allowance industry's top 10 spenders, according to the nonprofit Center for Responsive Politics.
THINNING RANKS
Zubretsky said he expects the contempo beachcomber of M&A action to abide in the bloom allowance area and that Aetna would still accept the banknote breeze for "small detached transactions."
"The bold lath is accepting a little thin," he said. "There has been a lot of alliance afresh and I see no acumen why there wouldn't be more."
In July, WellPoint said it would buy battling Amerigroup for $4.46 billion, about acceleration its Medicaid business. Aftermost October, Cigna Corp agreed to buy HealthSpring Inc for $3.8 billion to strengthen its Medicare business.
Gabelli's Jonas acclaimed bazaar belief that Humana Inc adeptness do a deal, adage that it is able in Medicare but adequately baby in Medicaid and employer-provided insurance.
"UnitedHealth could calmly allow an accretion but they accept such calibration and adequacy in all areas that they don't charge to do anything," he said.
Including the acceptance of Coventry debt, the transaction is admired at $7.3 billion, the companies said. Aetna affairs to affair $2.5 billion in new debt and bartering cardboard to admonition accounts the accord but does not apprehend any appulse on acclaim ratings.
Zubretsky affirmed Aetna's banking forecasts for the year but said they additionally reflected the actuality that the accord would abate the company's adeptness to buy aback shares for the blow of 2012.
Aetna said it expects the accord to add abundantly to operating balance per allotment in 2013, 45 cents per allotment in 2014 and 90 cents per allotment in 2015.
Aetna's banking admiral were Goldman Sachs and UBS Investment Bank, while Davis Polk & Wardwell LLP and Jones Day served as acknowledged advisers. Coventry's banking adviser was Greenhill and Co, and it accustomed acknowledged admonition from Wachtell, Lipton, Rosen & Katz; Bass, Berry & Sims PLC; and Crowell & Moring LLP.
(Additional advertisement by Adithya Venkatesan and Anil D'Silva in Bangalore, David Morgan in Washington; alteration by Michele Gershberg, Matthew Lewis and M.D. Golan)
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