Aetna Inc. (NYSE: AET) and Coventry Health Care, Inc. (NYSE: CVH) have announced that they have entered into a definitive agreement under which Aetna will acquire Coventry for a combination of cash and stock. The agreement, subject to customary shareholder approvals and anti-trust and closing procedures, has been approved by both companies’ boards of directors.
Aetna “is one of the nation’s leading diversified health care benefits companies” which claims to serve over 36 million people. According to its press release, this deal will add over 5 million new individual clients, with a focus on Medicare Part D, individual Medicare Advantage and Medicaid clients. It will also add to Aetna’s consumer-based commercial lines of business and help the company lower costs.
The deal will reportedly increase Aetna’s share of revenues from government health plan business to over 30% from 23%. By most accounts, upcoming changes related to Obama’s Affordable Care Act were a major consideration in the acquisition.
This follows a trend of big insurers to increase their exposure to government-based health plans as ageing baby boomers increase private insurers’ Medicare business and the U.S. health-care overhaul expands coverage generally, including Medicaid.
While at least one rating agency announced a possible downgrade, initial market reaction was positive. Aetna’s share price gapped upward to $39.62 at the open from $38.04 from Friday’s close.