Jun 25, 2015 |
By Ed Hammond, Matthew Campbell and Zachary Tracer
(Bloomberg) — Aetna Inc. (NYSE:AET), the
second-largest U.S. health insurer by market value, is closing in on an
acquisition of Humana Inc. (NYSE:HUM) and could reach a deal as early as this
weekend, several people with knowledge of the matter said.
Humana shares
rose 8 percent to $198.99 at 1:47 p.m. in New York, the biggest intraday gain
since May 29. Aetna shares rose 2.8 percent to $131.07.
Discussions
between the two companies have intensified during recent days, after it emerged
over the weekend that rivals Anthem Inc. (NYSE:ANTM) and Cigna Corp. (NYSE:CI)
had held merger talks of their own, said the people, who asked not to be
identified discussing private information.
Efforts to
protect insurers could make sitting alone increasingly uncomfortable.
Aetna made a
formal bid this week in the form of cash and stock, the people said. While the
exact offer details weren’t available, any proposal would probably value Humana
above its $28 billion market capitalization as of Wednesday’s close.
Humana has
received two offers, one from Aetna and another from Cigna, said another
person. The Humana board prefers the offer from Aetna, the person said.
A
representative for Humana didn’t respond to requests for comment.
Representatives for Aetna and Cigna declined to comment.
Should Humana
agree to sell itself to Cigna, it would run the risk of Cigna’s shareholders
voting down a deal to try and persuade the company to sell itself to Anthem,
which last weekend said it had offered to pay $184 a share for Cigna.
No agreement
yet
No agreement
between Humana and Aetna has been reached, the people cautioned, adding that
Humana could still agree to a different transaction, such as selling itself to
Anthem, which has also previously expressed interest, or Cigna, the person
said.
UnitedHealth
Group Inc. (NYSE:UNH), the largest U.S. health insurer, could also make a bid
for Aetna, complicating the situation even further. The U.S. health insurance
sector is undergoing a period of intense deal activity, with the five largest
insurers based on market value all working either to sell themselves or buy a
rival.
Humana’s 3.2
million Medicare Advantage members have made it a target, as more Americans
turn 65 and become eligible for the health program for the elderly and its
private insurer-run version.
“Medicare
Advantage is a coveted space,” Michael Bernstein, a partner at Baird Capital’s
U.S. private equity team who focuses on health care, said in an interview. “To
develop a similar scale in Medicare would take a great deal of work and time,
which would be bypassed by making that transaction happen.”
Medicare
business
Medicare
Advantage membership is expected to rise to 68.4 million in 2023, up 26 percent
from this year, according to the Centers for Medicare & Medicaid Services
(CMS). Humana, based in Louisville, Ky., insures more than 14 million people
through commercial, Medicare and Medicaid plans.
Some of the
consolidation talk has been fueled by the Patient Protection and Affordable
Care Act (PPACA). The 2010 law overhauled the U.S. health care system with new
rules that force insurers to look for efficiencies. The law also provided
subsidies to help people afford insurance, creating millions of new customers
that the companies are racing to capture.
Today’s Supreme
Court decision upholding a key piece of the PPACA helps remove a potential
obstacle. The decision keeps U.S. subsidies flowing to more than 6 million
people who use the PPACA health insurance exchanges operated by the U.S.
Department of Health and Human Services (HHS).
—With
assistance from Ryan Sachetta in New York
Copyright 2015
Bloomberg. All rights reserved. This material may not be published, broadcast,
rewritten, or redistributed.
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