America's Health Insurance Industry Continues Damaging Obamacare Contraction: Aetna Absorbs Coventry
August 20th, 2012
We predicted this, among other industry experts, and it is slowly beginning to coalesce, as yet another health insurance provider has recently been absorbed by a major industry player.
This time it was 800 pound industry gorilla Aetna buying Coventry healthcare for $7.3 billion dollars, in a transaction that promises to fatally reduce competition, once again, in the already flagging health insurance industry.
Many brokers and companies all across the US have been faced with severe cutbacks and job reductions leaving the already beleagured health insurance industry reeling. This uncertainty, along with the increasingly burdensome regulations, will continue to whittle away at this very important sector of American healthcare, which actually funds our once superlative healthcare system.
These incremental reductions will eventually leave America with only a few "too big to fail companies," which, ironically, was also one of the reasons for the 2008 US financial system meltdown as it regards the banks, supposedly "required" to be rescued because they were "too big to fail."
In the Obama regime's and the Liberal Democrats' ridiculous antics in passing the "affordable healthcare act," what we are now seeing is a constriction of competition that will necessarily force prices to rise, ostensibly creating the exact opposite effect of the one originally intended by the oh-so-brilliant Obama "free market enterprise" team.
Below is the story, R.I.P. American healthcare, as we knew it:
Aetna (NYSE: AET) and Coventry Health Care, Inc. (NYSE: CVH) today announced that they have entered into a definitive agreement pursuant to which Aetna will acquire Coventry in a transaction valued at $7.3 billion, including the assumption of Coventry debt.(1) Coventry is a diversified managed health care company that offers a full portfolio of risk and fee-based products, including Medicare Advantage and Medicare Part D programs, Medicaid managed care plans, group and individual health insurance, coverage for specialty services such as workers’ compensation, and network rental services. The acquisition is projected to add nearly 4 million medical members and 1.5 million Medicare Part D members to Aetna’s membership. On a pro forma basis, the transaction increases Aetna’s share of revenues from Government business to over 30 percent from 23 percent currently.
Under the terms of the agreement, which has been approved by the board of directors of each company, Coventry stockholders will receive $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, August 17, 2012. Aetna expects to finance the cash portion of the transaction with a combination of cash on hand and by issuing approximately $2.5 billion of new debt and commercial paper. Excluding transaction and integration costs, the transaction is projected to be modestly accretive to Aetna’s operating earnings per share (2) in 2013, $0.45 accretive in 2014 and $0.90 accretive in 2015.
The Coventry acquisition is expected to:
- Add a growing Individual Medicare Advantage business and a leading Medicare Part D business, complementing Aetna’s Group Medicare Advantage franchise
- Substantially increase Aetna’s Medicaid footprint, creating more opportunity to participate in the expansion of Medicaid and to pursue high acuity populations as they move into managed care
- Improve Aetna’s positioning in consumer-based commercial lines of business, including Middle Markets, Small Group and Individual, and
- Add a low-cost administrative platform and value-based provider networks.
“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. “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.
“Once the transaction is completed, our larger capital base also will enhance our ability to continue to invest in innovation, technologies and capabilities to lead the transformation of the U.S. health care industry,” said Bertolini.
“Aetna and Coventry share a commitment to improving the health and well-being of our members,” said Allen F. Wise, chairman and CEO of Coventry. “With this transaction, our combined businesses will be positioned to better serve a broader market and develop new partnerships with providers to offer high quality and affordable health care. We look forward to working together to build upon the strengths of each company to take advantage of opportunities during this dynamic time for our industry.”
Joseph M. Zubretsky, Aetna’s senior executive vice president and CFO, added, “This acquisition is in keeping with Aetna’s disciplined approach to deploying capital. Coventry’s diversified business will enhance and balance Aetna’s core Commercial and Government businesses, while its strong local provider relationships will create additional marketing opportunities for our Accountable Care Solutions and provider technology businesses.
“The transaction also will create a significant synergy opportunity to further Aetna’s efforts to increase our operating efficiency. We expect synergies from the transaction to be $400 million annually in 2015,” said Zubretsky. “These cost efficiencies will support our efforts to drive costs out of the system and offer products at a lower price point in the marketplace.”
The transaction is subject to Coventry stockholder approval, as well as other customary closing conditions, including expiration of the federal Hart-Scott-Rodino antitrust waiting period and approvals of state departments of insurance and other regulators. The acquisition is expected to close in mid-2013.
Aetna and Coventry will hold a conference call to discuss the transaction at 8:30 a.m. ET today. The public may access the conference call through a live audio webcast available on Aetna's Investor Information link at www.aetna.com</a>, and on Coventry’s Investor Relations link at www.coventryhealthcare.com</a>. Information related to the conference call also will be available on Aetna's Investor Information website and Coventry’s Investor Relations website.
The conference call also can be accessed by dialing 888-455-2296 or +1-719-325-2329 for international callers. Participants should dial in approximately 10 minutes before the call. The access code is 6548676. Individuals who dial in will be asked to identify themselves and their affiliations.
A replay of the call may be accessed through Aetna's Investor Information link at www.aetna.com</a>.
Aetna’s financial advisors were Goldman Sachs and UBS Investment Bank. Coventry’s financial advisor was Greenhill and Co. Aetna’s legal advisors were Davis Polk & Wardwell LLP and Jones Day. Coventry’s legal advisors were Wachtell, Lipton, Rosen & Katz; Bass, Berry & Sims PLC; and Crowell & Moring LLP.