Insurer Aetna agrees to buy competitor in $37B deal

However, insurance prices depend largely on the cost of health care locally, not how big an insurer gets nationally. (Humana; NYSE:HUM) on review for upgrade following the announcement that Aetna Inc.

On June 20, Anthem went public with a more than $47 billion cash-and-stock bid for Cigna, which Cigna rejected in a letter sent to Anthem the next day.

The CEOs said the deal made sense in the rapidly changing health care market, especially since Aetna and Humana have what they called “complementary customers”, with Humana handling a growing Medicare Advantage business and Aetna handling a large and diverse commercial business.

“The health insurance landscape is convulsing, and industry-wide scrutiny is necessary to protect consumers”, Blumenthal said. In the meantime, getting bigger would give insurers more clout to negotiate expenses with health systems. But many of these health care providers also have been growing and gaining their own leverage. Aetna’s shareholders will have about 74% ownership in the combined company, while Humana’s shareholders will own about 26% of the new company.

Regulators “should be exceedingly skeptical of this deal” between Aetna and Humana, said Diana Moss, president of the American Antritrust Institute.

“We’re really optimistic that we’re going to have a chance to be able to sit down with them”, Hayes said. For 2016, Aetna expects the transaction to be neutral to the company’s earnings-per-share (EPS).

Aetna will acquire outstanding shares of Humana at around $230 per share, according to a joint statement by the two companies. The transaction, which is subject to regulatory approval and other closing conditions, is expected to close in the second half of 2016.

The combined company would have projected 2015 operating revenue of approximately $115 billion, with approximately 56 percent from government sponsored programs (including Medicare and Medicaid).

More than 33 million people will be covered by the combined company.

He noted that in order to approve that purchase, the Department of Justice required divestitures of customer bases in 45 counties in five states, because otherwise, the merger would have resulted in the combined company controlling 40 to 100 percent of the market for Medicare Advantage plans. Humana has a large presence in the private Medicare market.

Medicare Advantage covers doctors’ visits and hospitalization, like traditional Medicare, and usually also includes prescription drug coverage, which regular Medicare clients buy through Part D. According to reports, the deal is the largest ever in the insurance industry. The price of Humana shares, in particular, bolted past $200 in May after the Wall Street Journal reported that the insurer was a takeover target.

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.