Aetna to Acquire Coventry Health Care

Aetna to Acquire Coventry Health Care

By SHARON TERLEP and ANUPREETA DAS

Health-care giant Aetna Inc. AET -0.34% said Monday it has struck a deal to buy Coventry Health Care Inc. CVH +0.66% for $5.7 billion in cash and stock, a move that will make Aetna one of the largest providers of government-financed health care.

Aetna, based in Hartford, Conn., is paying $42.08 a share for Coventry, which is a 20.4% premium to Coventry’s shares as of Friday’s close. The mix is 65% cash and 35% stock. The boards of both companies have approved the deal.

Aetna, known more for commercial health insurance, has been interested in expanding government-based health plans—Medicare for the elderly and Medicaid for the poor—that are growing as baby boomers and states look for help managing Medicaid costs.

Aetna’s deal for Coventry follows on the heels of other health-care insurers bulking up their offerings by adding Medicare and Medicaid insurance providers in light of the federal health-care law that aims to provide affordable coverage for Americans.

Earlier this year, WellPoint Inc. WLP -1.00% agreed to buy Amerigroup Corp., AGP -0.14% a Medicaid-focused coverage provider, for $4.46 billion, a deal that will make the combined company the largest private Medicaid company by membership.

Last year, Cigna Corp. CI -0.43% agreed to buy HealthSpring for $3.8 billion to build up its Medicare business.

Bethesda, Md.-based Coventry mainly serves individuals, employers and government agencies through its network of insurance brokers. Aetna sees value in Coventry’s consumer-based lines, which are big in midsize and smaller markets where Aetna hasn’t focused, as well as in its government business.

In acquiring Coventry, Aetna’s share of revenue from its government business will grow to over 30% from 23% currently, Aetna said Monday. Aetna expects the acquisition to add around 45 cents to per-share earnings in 2014 and 90 cents in 2015.

Under the agreement, Coventry stockholders will receive $42.08 a share, in a combination of cash and 0.3885 share of Aetna for each Coventry share. Including assumption of debt, the deal’s total value is $7.3 billion, making it one of this year’s largest transactions to date.

Health-care companies are seeking new opportunities to take advantage of President Obama’s health-care reform law, under which Medicaid, the state coverage program for low-income Americans, is set to expand beginning 2014.

Write to Sharon Terlep at sharon.terlep and Anupreeta Das at anupreeta.das