Health care-insurance giant Aetna has agreed to acquire smaller rival Humana for $37 billion in cash and stock making it the largest ever deal in the insurance industry. The rapid consolidation in the U.S. health care industry. brings together Humana’s growing Medicare Advantage business with Aetna’s diversified portfolio and commercial capabilities to create a company serving the most seniors in the Medicare Advantage program and the second-largest managed care company in the nation.
Under the terms of the agreement, Aetna will pay Humana shareholders $125 in cash and 0.8375 Aetna shares for each share held. The deal gives Aetna shareholders 74% of Humana and Humana shareholders 26%. Aetna expects to finance the cash portion of the transaction with a combination of cash on hand and by issuing approximately $16 billion of new term loans, debt and commercial paper.
Upon closing, which is expected to be in the second half of 2016, the company’s debt-capital ratio is projected to be approximately 46 percent, and management has committed to reducing that ratio below 40 percent over the 24 months following the closing. The transaction is projected to be neutral to Aetna’s 2016 Operating EPS and produce mid-single digit percentage Operating EPS accretion in 2017 and low double-digit percentage Operating EPS accretion in 2018.
“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 chairman and CEO in an official statement. “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.”
The combined company will have over 33 million medical members and is expected to generate approximately $115B in operating revenue this year alone, with roughly 56% of that revenue coming from Medicare and Medicaid. After closing Aetna will make Louisville the headquarters for its Medicare, Medicaid and TRICARE businesses, and will maintain a significant corporate presence in Louisville. Mark Bertolini will continue to serve as Chairman and CEO of the combined company.
Other key facts about the acquisition include:
– Transaction projected to realize $1.25 Billion in annual synergies in 2018
– Builds on each company’s respective efforts to provide innovative, technology-driven products, services and solutions to build healthier populations, promote higher quality health care at lower cost, and offer greater transparency and convenience for consumers.
– Increases Aetna’s Medicare Advantage membership to 4.4 million and improves Aetna’s ability to serve members and their providers with cutting-edge technology and best practices.
– Brings together two companies with leading percentages of membership in Medicare plans rated four Stars or higher.
– Creates a leading health care services and pharmacy benefit franchise, serving members who use over 600 million prescriptions annually.
– Strengthens care management capabilities by taking the best-of-breed provider solutions, including robust offerings of patient-centered provider services, clinical intelligence, value-based reimbursement models, data integration and analytics solutions from both companies.
– Brings together two companies with longstanding commitments to promoting wellness, health, and access to high-quality health care for everyone, while supporting the communities in which they serve.
