Health-care giant Aetna (NYSE:
) has agreed upon terms to purchase Coventry Health Care (NYSE:
) for $5.7 billion. The 20 percent premium for Coventry has shares
trading north of $40. Aetna, in the meantime is trading up around
three percent in Monday morning trading. Aetna's buyout comes a
week after WellPoint (NYSE:
) announced plans to buy Amerigroup (NYSE:
) for $4.46 billion. It appears the health care sector will
continue to consolidate as companies try to expand their health
plan coverage to include Medicare and Medicaid programs.
The Wall Street Journal
reports that Aetna will pay about $42.08 per Coventry share. The
breakdown of the deal is said to be 65 percent cash and 35 percent
stock. The acquisition is likely to increase Aetna's share of
revenue from its government business by seven percent. Aetna, the
third largest U.S. healthcare provider, predominately manages
commercial health insurance. However, the company is attempting to
capitalize on President Obama's healthcare reform law, as Medicaid
programs are set to expand to state coverage for low income
citizens beginning in 2014.
Comparatively, Cigna (NYSE:
last year for $3.8 billion to take advantage of the Medicare and
Medicaid divisions. In the merger, Cigna paid a 37 percent premium
for HealthSpring last October.
Investors can look for continued consolidation of government
Medicare and Medicaid insurance providers.
) currently receives three-quarters of its revenue from
"The company's enrollment is growing as the U.S. population ages
and the new members are using more medical care. The increase in
doctor visits may have come because people put off care before
joining Medicare due to the weak economy", said Humana's Executive
Vice President James Murray.
UnitedHealth Group, (NYSE:
) is the largest U.S. single healthcare provider and may be the
next insurer looking to cash in on the Medicare, Medicaid
On August 17, UnitedHealth's pharmacy management division
said it was creating 600 new jobs in California through 2013.
OptumRx is ramping up its order processing facility with an
additional 250 jobs as well. The build out of the facility may
provide adequate resources for aging baby-boomers to tap their
Medicare and Medicaid coverage.
The activity in health care issues should continue to remain
volatile, as rumors persist amid the battle to increase the share
of the government program's pie.
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