Aetna To Buy Humana In $37 Bln Cash And Stock Deal

(RTTNews) - Health insurers Aetna Inc. (AET) and Humana Inc. (HUM) Friday said they have entered into a definitive agreement, under which Aetna would acquire Humana for a combination of cash and stock valued at about $230 per Humana share or $37 billion in total.

The transaction is expected to be neutral to Aetna's 2016 operating earnings per share and produce mid-single digit percentage operating earnings per share accretion in 2017, and low double-digit percentage operating earnings per share accretion in 2018.

Based on the closing price of Aetna shares on July 2, Humana stockholders will receive $125 in cash and 0.8375 Aetna shares for each Humana share.

Aetna would suspend its share repurchase program for the combined company for approximately 6 months, following the deal closure. Humana would also suspend its share repurchase program.

Both companies intend to continue quarterly dividend payments, including the $0.25 dividend declared by Aetna and $0.29 by Humana. Further, Aetna has agreed its quarterly dividend to not exceed $0.25 per share and Humana has agreed its quarterly dividend to not exceed $0.29 per share, prior to closing.

Following the combination, Aetna's shareholders will own about 74 percent of the combined company and Humana's shareholders will own the remaining 26 percent. Closing of the deal is expected to be in the second half of 2016. The deal would add over 14 million total members, including 3.2 million medicare advantage members.

According to the companies, the combination brings together Humana's growing Medicare Advantage business with Aetna's diversified portfolio and commercial capabilities. This would create a company serving the most seniors in the Medicare Advantage program and the second-largest managed care company in the United States.

The combined company would have projected 2015 operating revenue of $115 billion, with 56 percent from government sponsored programs, including Medicare and Medicaid. It would also have over 33 million medical members, based on memberships as of March 31.

Aetna expects synergies from the transaction to be $1.25 billion annually in 2018.

Following the deal closure, Aetna chairman and CEO Mark Bertolini will serve as Chairman and CEO of the combined company. At the time of the closing, the Aetna Board of Directors will comprise twelve current Aetna directors and four Humana directors, for a total of sixteen directors.

Aetna will make Louisville the headquarters for its Medicare, Medicaid and TRICARE businesses.

Aetna expects to finance the cash portion of the transaction with a combination of cash on hand and by issuing $16 billion of new term loans, debt and commercial paper.

On the NYSE, Aetna shares lost 2.65 percent on Thursday to settle at $125.49, and Humana shares lost 2.88 percent to settle at $187.57.