Hartford-based health care company Aetna and Louisville health insurance company Humana have formally announced plans for a merger worth $34.1 billion on Friday, making it one of the country’s biggest health insurance providers in the process.
The deal, which sees Aetna getting 76 percent and Humana 24 percent of the new combined company’s shares, went through despite the fact that other major health market players seeking to buy Humana repeatedly tried to interfere with the process.
According to Wall Street Journal reports, UnitedHealth Group, Cigna or Anthem were other companies interested in snatching the Louisville company, which generated $41.3 billion in revenue last year. Cigna, a health care company headquartered in Bloomfield, CT, was particularly interested in absorbing Humana even though it was facing an own bid from Blue Cross and Blue Shield giant Anthem Inc.
Anthem had made public its bid for a Cigna buyout lastmonth, which is worth about $47.5 billion and has reportedly high chances to go through. The more curious then to why Cigna officials inquired about Humana on Thursday evening, less than 20 hours before the Aetna deal was to be announced.
Despite apparently calling for a direct offer, Humana’s board were no doubt conflicted about the situation, and must have found themselves pondering whether Cigna were actually interested in the company or if they would be using Humana as a better bargaining chip in their negotiations with Anthem. There were also concerns that Cigna shareholders would not approve the bid due to Anthem’s offer, as shareholders are notoriously more favorable towards selling rather than buying.
However, all concerns where ironed when the final talks with Aetna representatives were held. Aetna itself was reportedly approached by the UnitedHealth Group for a potential merger. It ignored the inquiry and proceeded with the Humana talks, which were nearly finished on Tuesday before disputes regarding a break up fee emerged. Ultimately, the companies settled for 3.75 percent of the current deal being paid as a fee in case any of the sides were to withdraw the arrangement in case of a more favorable bid.
Despite the fact that most details have been approved, the Aetna and Humana deal is structured in a way which requires both companies to gain shareholder approval and be reviewed by the Securities and Exchange Commission, which could still take a couple of months. This is more than enough time for other companies to jump into the fray and disrupt it.
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