U.S. health insurer
Coventry Health Care Inc.
) has announced that its shareholders have approved the
acquisition of the company by
. Almost 78% of the shareholders have overwhelmingly supported
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The approval of the merger agreement by Coventry's shareholders
represents an important milestone for Aetna to complete the
former's acquisition. The abovementioned deal is subject to
clearance by the state departments of insurance and other
regulators along with other closing conditions.
In August this year, Aetna had signed an agreement to acquire
Coventry for $7.3 billion. This represents a total equity
purchase price of approximately $5.7 billion. Aetna is also
assuming $1.6 billion of Coventry's existing debt. The deal will
see light in mid 2013.
Compelling Strategic Transaction
Coventry will provide Aetna with direct access to two of the most
exciting business lines: Government programs and Commercial
insured business. We strongly believe that the transaction will
generate long-term financial and strategic values for Aetna's
shareholders based on its compelling strategic merits:
• Coventry will add 4 million combined medical
members to Aetna's member base.
• Increased Government programs (Medicare
Advantage, Medicare PDP, Medicaid) presence.
• Improved positioning and reach in
• Enhanced capabilities for 2014 and beyond,
via low-cost platforms and value-based networks.
• It will add a network of over 5,500 licensed
• Open other geographies, such as Pittsburgh
and St. Louis, where Aetna lacked significant presence
Financial Impact of the Transaction
The transaction is anticipated to be modestly accretive to
Aetna's operating earnings in 2013. Moreover, it may add 45 cents
per share to its operating earnings in 2014 and 90 cents per
share in 2015. Total pre-tax synergies of $400 million are
expected in 2015.
Aetna will pay the purchase consideration to Coventry in 65% cash
and the rest 35% as Aetna stock. The cash component of $27.30 per
Coventry share will be financed using a variety of sources,
including new debt and commercial paper as well as cash in hand
at each of the companies at closing.
Aetna will have to incur one-time transaction-related costs of
$120 million, including up to $50 million of costs in 2012.
Thereafter, there will be cumulative integration costs of
$250-$300 million through 2015.
The transaction is positive for Aetna given Coventry's scale and
size. The later's diversified business portfolio also
complements Aetna's own portfolio. Moreover, Aetna holds a strong
track record of successfully integrating acquisitions.
Other players are also aggressively seeking deals to gain market
share in the government business, which is expected to boom with
millions of baby boomers entering retirement age every year. Some
notable deals include
UnitedHealth Group Inc.
) acquisition of XLHealth Corp. and
) pending acquisition of