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Aetna-Humana


Aetna Inc. (NYSE:AETD) and Humana Inc. (NYSE:HUMC) have called off the ‘wedding.’ The two companies have decided not to appeal a judge’s decision to block their $34 billion merger on antitrust grounds.

The insurers said Tuesday they would terminate their agreement. This move contradicts Aetna’s comments that it would consider appealing last month’s antitrust decision. Now both companies must move ahead on their own.

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The Ruling

U.S. District Judge John D. Bates said last month that the merger would threaten competition and cause harm to seniors who buy private Medicare coverage known as Medicare Advantage. In his 156-page decision Judge Bates said the merger would lead to a substantial lessening of competition for Medicare Advantage plans in 364 counties.

Said Judge Bates, “This head-to-head competition benefits seniors who shop for Medicare Advantage plans in the form of broader networks and lower costs.” Furthermore, the judge rejected a proposed divestiture plan saying it would not solve the problems created by the Aetna-Humana merger.

Blocking Health Care M&A

According to analysts, this latest decision to forgo a court fight could result in a similar move by Anthem Inc. (NYSE:ANTMC) and Cigna Corp. (NYSE:CIC), players in another health care merger blocked last week by a federal judge in Washington D.C.

This despite the fact Anthem said it planned to appeal the judge’s ruling. In fact, Cantor Fitzgerald analyst, Steven Halper, who reiterated his Overweight rating on shares of AET following Aetna’s announcement said he did not expect additional large scale health care mergers anytime soon – including Anthem/Cigna. Halper thinks AET shares are undervalued on a standalone basis. There was no change to the PT of $140.

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Humana A Target Or An Acquirer

An opposing view to Halper’s suggests that either Anthem or Cigna could target Humana. This is partly based on the fact the four companies involved have built up almost $40 billion in cash and equivalents. As of Dec. 31 Anthem and Cigna had about $5.7 billion in cash and Aetna has almost $21 billion in cash and short-term investments.

According to Ana Gupte, analyst at Leerink Partners, “Cigna or Anthem may make a bid for the Louisville, Kentucky-based company (Humana), which specializes in the fast-growing business of selling private health plans for the elderly.” Gupte added that Cigna could also bid for WellCare Health Plans Inc. (NYSE:WCGC).

Finally, Humana should not be discounted as an acquirer. At the end of last year, the company had $14 billion in cash and short-term investments.



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