Medicare- and Medicaid-focused health insurers continue to be the darlings of the acquisition ball, as evidenced by yesterday's announcement that Aetna would purchase Coventry Health Care in a cash and stock deal valued at $5.7 billion.
Managed care company Coventry operates broadly in the government-sponsored business space including Medicare Advantage, Medicare Part D and state Medicaid plans. In all the deal will add more than 5 million members to Aetna's book of business, including 4 million medical members and 1.5 million Medicare Part D members.
"The acquisition will advance Aetna toward our goal of becoming the global leader in empowering people to live healthier lives," said Mark T. Bertolini, Aetna's chairman, CEO and president in a conference call Monday announcing the deal. "As we think about 2014 and beyond, Coventry's intense local focus with substantial small-group and individual membership, a low-cost operating model and affordable products will complement Aetna's [strengths and] accelerate our readiness for the consumer exchanges."
Also, Bertolini noted, the acquisition further shifts the company's diverse portfolio toward the higher growth government sector. Once the deal is completed the company said its government business operations will account for more than 30 percent of revenues compared with its current 23 percent.
The acquisition of Coventry will pay its shareholders $42.08 per share, which will be a combination of $27.30 in cash and 0.3885 shares of Aetna stock for every Coventry share. Aetna will also assume roughly $1.6 billion of debt from Coventry which bumps the total price of the deal to more than $7.3 billion.
The announcement comes amid a spate of recent acquisitions of companies whose primary focus is the government sector, both Medicare and Medicaid plans. The deal comes six weeks after Wellpoint agreed to acquire Medicaid managed care company Amerigroup for $4.9 billion and 10 months after Cigna wrapped up its own Medicaid deal, a $3.8 billion acquisition of Medicare Advantage company HealthSpring.
Yesterday's announcement may have taken the luster off a couple of other insurers thought to be potential takeover targets that also operate in the government sector. Centene Corp., which operates in the Medicaid sector, and Molina Healthcare, which has 1.7 million members in the Medicare and Medicaid segments, may have missed out on this recent wave of consolidation.
"Centene and Molina may lose some premium post-the Amerigroup deal, as no clear buyers of these government payers exist," said Thomas Carrol, an analyst with Stifel Nicolaus, in an investment note.
The Coventry-Aetna deal has been approved by the boards of both companies, but will require approval of Coventry shareholders. Should all things move according to plan, the companies anticipate formally closing the deal in mid 2013.