Item 8.01. Other Events.
Aetna Inc. ("Aetna") and Coventry Health Care, Inc. ("Coventry") announced on
August 20, 2012 that they have entered into a definitive agreement pursuant to
which Aetna will acquire Coventry in a transaction valued at $7.3 billion,
including the assumption of Coventry debt.(1) Coventry is a diversified managed
health care company that offers a full portfolio of risk and fee-based products,
including Medicare Advantage and Medicare Part D programs, Medicaid managed care
plans, group and individual health insurance, coverage for specialty services
such as workers' compensation, and network rental services. The acquisition is
projected to add nearly 4 million medical members and 1.5 million Medicare Part
D members to Aetna's membership. On a pro forma basis, the transaction increases
Aetna's share of revenues from Government business to over 30 percent from 23
percent currently.
Under the terms of the agreement, which has been approved by the board of
directors of each company, Coventry stockholders will receive $27.30 in cash and
0.3885 Aetna common shares for each Coventry share, or $42.08 per share, based
on the closing price of Aetna common shares on Friday, August 17, 2012. Aetna
expects to finance the cash portion of the transaction with a combination of
cash on hand and by issuing approximately $2.5 billion of new debt and
commercial paper. Excluding transaction and integration costs, the transaction
is projected to be modestly accretive to Aetna's operating earnings per share
(2) in 2013, $0.45 accretive in 2014 and $0.90 accretive in 2015.
The Coventry acquisition is expected to:
· Add a growing Individual Medicare Advantage business and a leading Medicare
Part D business, complementing Aetna's Group Medicare Advantage franchise
· Substantially increase Aetna's Medicaid footprint, creating more opportunity to
participate in the expansion of Medicaid and to pursue high acuity populations
as they move into managed care
· Improve Aetna's positioning in consumer-based commercial lines of business,
including Middle Markets, Small Group and Individual, and
· Add a low-cost administrative platform and value-based provider networks.
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The transaction is subject to Coventry stockholder approval, as well as other
customary closing conditions, including expiration of the federal
Hart-Scott-Rodino antitrust waiting period and approvals of state departments of
insurance and other regulators. The acquisition is expected to close in
mid-2013.
(1) Based on the closing price of Aetna common shares on August 17, 2012.
(2) Projected operating earnings per share excludes from net income any net
realized capital gains or losses and other items, if any, that neither relate to
the ordinary course of Aetna's business nor reflect Aetna's underlying business
performance. Projected operating earnings per share also exclude projected
integration and one-time transaction costs related to the acquisition of
Coventry Health Care, Inc. Aetna is not able to project the amount of future net
realized capital gains or losses or any such other items (other than the
projected integration and one-time transaction costs related to the Coventry
acquisition) and therefore cannot reconcile projected operating earnings per
share to projected net income per share in any period. Although the excluded
items may recur, management believes that operating earnings per share provide a
more useful comparison of Aetna's underlying business performance from period to
period. Net realized capital gains and losses arise from various types of
transactions, primarily in the course of managing a portfolio of assets that
support the payment of liabilities. However, these transactions do not directly
relate to the underwriting or servicing of products for customers and are not
directly related to the core performance of Aetna's business operations. In
addition, management uses operating earnings to assess business performance and
to make decisions regarding Aetna's operations and allocation of resources among
Aetna's businesses. Operating earnings is also the measure reported to the Chief
Executive Officer for these purposes.
Important Information For Investors And Stockholders
This communication does not constitute an offer to sell or the solicitation of
an offer to buy any securities or a solicitation of any vote or approval. Aetna
Inc. ("Aetna") will file with the Securities and Exchange Commission ("SEC") a
registration statement on Form S-4 containing a proxy statement/prospectus and
Coventry Health Care, Inc. ("Coventry") will file with the SEC a proxy
statement/prospectus, and each of Aetna and Coventry will file other documents
with respect to the proposed acquisition of Coventry and a definitive proxy
statement/prospectus will be mailed to stockholders of Coventry. INVESTORS AND
SECURITY HOLDERS OF COVENTRY ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS
AND OTHER DOCUMENTS THAT WILL BE FILED WITH THE SEC CAREFULLY AND IN THEIR
ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. Investors and security holders will be able to obtain free copies
of the registration statement and the proxy statement/prospectus (when
available) and other documents filed with the SEC by Aetna or Coventry through
the website maintained by the SEC at http://www.sec.gov. Copies of the documents
filed with the SEC by Aetna will be available free of charge on Aetna's internet
website at http://www.aetna.com or by contacting Aetna's Investor Relations
Department at 860-273-8204. Copies of the documents filed with the SEC by
Coventry will be available free of charge on Coventry's internet website at
http://www.cvty.com or by contacting Coventry's Investor Relations Department at
301-581-5717.
Aetna, Coventry, their respective directors and certain of their executive
officers may be considered participants in the solicitation of proxies in
connection with the proposed transaction. Information about the directors and
executive officers of Coventry is set forth in its Annual Report on Form 10-K
for the year ended December 31, 2011, which was filed with the SEC on February
28, 2012, its proxy statement for its 2012 annual meeting of stockholders, which
was filed with the SEC on April 6, 2012, and its Current Report on Form 8-K,
which was filed with the SEC on May 31, 2012. Information about the directors
and executive officers of Aetna is set forth in its Annual Report on Form 10-K
for the year ended December 31, 2011 ("Aetna's Annual Report"), which was filed
with the SEC on February 24, 2012, its proxy statement for its 2012 annual
meeting of stockholders, which was filed with the SEC on April 9, 2012 and its
Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 ("Aetna's
Second Quarter 10-Q") which was filed with the SEC on July 31, 2012. Other
information regarding the participants in the proxy solicitations and a
description of their direct and indirect interests, by security holdings or
otherwise, will be contained in the proxy statement/prospectus and other
relevant materials to be filed with the SEC when they become available.
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Cautionary Statement Regarding Forward-Looking Statements
This report may contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. You can generally identify forward-looking
statements by the use of forward-looking terminology such as "anticipate,"
"believe," "continue," "could," "estimate," "expect," "explore," "evaluate,"
"intend," "may," "might," "plan," "potential," "predict," "project," "seek,"
"should," or "will," or the negative thereof or other variations thereon or
comparable terminology. These forward-looking statements are only predictions
and involve known and unknown risks and uncertainties, many of which are beyond
Aetna's and Coventry's control.
Statements in this document regarding Aetna that are forward-looking, including
Aetna's projections as to the anticipated benefits of the pending transaction to
Aetna, increased membership as a result of the pending transaction, the impact
of the pending transaction on Aetna's businesses and share of revenues from
Government business, the methods Aetna will use to finance the cash portion of
the transaction, the impact of the transaction on Aetna's operating earnings per
share, the synergies from the pending transaction, and the closing date for the
pending transaction, are based on management's estimates, assumptions and
projections, and are subject to significant uncertainties and other factors,
many of which are beyond Aetna's control. Important risk factors could cause
actual future results and other future events to differ materially from those
currently estimated by management, including, but not limited to: the timing to
consummate the proposed acquisition; the risk that a condition to closing of the
proposed acquisition may not be satisfied; the risk that a regulatory approval
that may be required for the proposed acquisition is delayed, is not obtained or
is obtained subject to conditions that are not anticipated; Aetna's ability to
achieve the synergies and value creation contemplated by the proposed
acquisition; Aetna's ability to promptly and effectively integrate Coventry's
businesses; the diversion of management time on acquisition-related issues; and
the implementation of health care reform legislation and changes in Aetna's
future cash requirements, capital requirements, results of operations, financial
condition and/or cash flows. Health care reform will significantly impact
Aetna's business operations and financial results, including Aetna's medical
benefit ratios. Components of the legislation will be phased in over the next
six years, and Aetna will be required to dedicate material resources and incur
material expenses during that time to implement health care reform. Many
significant parts of the legislation, including health insurance exchanges,
Medicaid expansion, the scope of "essential benefits," employer penalties and
the implementation of minimum medical loss ratios, require further guidance and
clarification both at the federal level and/or in the form of regulations and
actions by state legislatures to implement the law. In addition, pending efforts
in the U.S. Congress to repeal, amend, or restrict funding for various aspects
of health care reform, the 2012 presidential and congressional elections, and
the possibility of additional litigation challenging aspects of the law continue
to create additional uncertainty about the ultimate impact of health care
reform. As a result, many of the impacts of health care reform will not be known
for the next several years. Other important risk factors include: adverse and
less predictable economic conditions in the U.S. and abroad (including
unanticipated levels of, or increases in the rate of, unemployment); adverse
changes in health care reform and/or other federal or state government policies
or regulations as a result of health care reform or otherwise (including
legislative, judicial or regulatory measures that would affect Aetna's business
model, restrict funding for or amend various aspects of health care reform,
limit Aetna's ability to price for the risk it assumes and/or reflect reasonable
costs or profits in its pricing, such as mandated minimum medical benefit
ratios, eliminate or reduce ERISA pre-emption of state laws (increasing Aetna's
potential litigation exposure) or mandate coverage of certain health benefits);
Aetna's ability to differentiate its products and solutions from those offered
by its competitors, and demonstrate that its products lead to access to better
quality of care by its members; unanticipated increases in medical costs
(including increased intensity or medical utilization as a result of flu,
increased COBRA participation rates or otherwise; changes in membership mix to
higher cost or lower-premium products or membership-adverse selection; changes
in medical cost estimates due to the necessary extensive judgment that is used
in the medical cost estimation process, the considerable variability inherent in
such estimates, and the sensitivity of such estimates to changes in medical
claims payment patterns and changes in medical cost trends; increases resulting
from unfavorable changes in contracting or re-contracting with providers, and
increased pharmacy costs); failure to achieve and/or delays in achieving desired
rate increases and/or profitable membership growth due to regulatory review or
other regulatory restrictions, the difficult economy and/or significant
competition, especially in key geographic areas where membership is
concentrated, including successful protests of business awarded to us; adverse
changes in size, product mix or medical cost experience of membership; Aetna's
ability to diversify its sources of revenue and earnings; adverse program,
pricing or funding actions by federal or state government payors, including
curtailment or elimination of the Centers for Medicare & Medicaid Services' star
rating bonus payments; the ability to reduce administrative expenses while
maintaining targeted levels of service and operating performance; the ability to
successfully implement Aetna's agreement with CVS Caremark Corporation on a
timely basis and in a cost-efficient manner and to achieve projected operating
efficiencies for the agreement; Aetna's ability to integrate, simplify, and
enhance its existing information technology systems and platforms to keep pace
with changing customer and regulatory needs; the success of Aetna's health
information technology initiatives; Aetna's ability to successfully integrate
its businesses (including Medicity, Prodigy Health Group, PayFlex, and Genworth
Financial Inc.'s Medicare Supplement business and other businesses Aetna may
acquire in the future, including Coventry) and implement multiple strategic and
operational initiatives simultaneously; managing executive succession and key
talent retention, recruitment and development; the outcome of various litigation
and regulatory matters, including guaranty fund assessments and litigation
concerning, and ongoing reviews by various regulatory authorities of, certain of
Aetna's payment practices with respect to out-of-network providers and/or life
insurance policies; reputational issues arising from its social media
activities, data security breaches, other cybersecurity risks or other causes;
the ability to develop and maintain relations with providers while taking
actions to reduce medical costs and/or expand the services Aetna offers; Aetna's
ability to maintain its relationships with third party brokers, consultants and
agents who sell Aetna's products; increases in medical costs or Group Insurance
claims resulting from any epidemics, acts of terrorism or other extreme events;
and a downgrade in Aetna's financial ratings. For more discussion of important
risk factors that may materially affect Aetna, please see the risk factors
contained in Aetna's Annual Report and Aetna's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2012 (Aetna's "First Quarter 10-Q") and Aetna's
Second Quarter 10-Q (together with Aetna's First Quarter 10-Q, Aetna's
"Quarterly Reports"), each on file with the SEC. You also should read Aetna's
Annual Report and Aetna's Quarterly Reports for a discussion of Aetna's
historical results of operations and financial condition.
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Statements in this document regarding Coventry that are forward-looking,
including but not limited to the anticipated benefits of the transaction to
Coventry, the projected closing date, the closing of the transaction, and the
projected membership additions to Aetna, are based on Coventry's management's
estimates, assumptions and projections, and are subject to significant
uncertainties and risks, many of which are beyond the control of Coventry's
management, including but not limited to: the failure to receive, on a timely
basis or otherwise, the required approvals by Coventry's stockholders and
government or regulatory agencies; the risk that a condition to closing of the
proposed transaction may not be satisfied; Coventry's and Aetna's ability to
consummate the proposed transaction; the possibility that the anticipated
benefits and synergies from the proposed transaction cannot be fully realized or
may take longer to realize than expected; the failure by Aetna to obtain the
necessary financing in connection with the proposed transaction; the possibility
that costs or difficulties related to the integration of Coventry's and Aetna's
operations will be greater than expected; operating costs and business
disruption may be greater than expected; the ability of Coventry to retain and
hire key personnel and maintain relationships with providers or other business
partners pending the consummation of the proposed transaction; and the
implementation of health care reform legislation. Among the risk factors that
may materially affect Coventry's business, operations or financial condition are
the ability to accurately estimate and control future health care costs; the
ability to increase premiums to offset increases in the Coventry's health care
costs; general economic conditions and disruptions in the financial markets;
changes in legal requirements from recently enacted federal or state laws or
regulations, court decisions, or government investigations or proceedings;
guaranty fund assessments under state insurance guaranty association law;
changes in government funding and various other risks associated with Coventry's
participation in Medicare and Medicaid programs; Coventry's ability to
effectively implement and manage its Kentucky Medicaid program, including the
implementation of appropriate risk adjustment revenue and management of the
associated medical cost and the effect on its MLR; a reduction in the number of
members in its health plans; its ability to acquire additional managed care
businesses and to successfully integrate acquired businesses into its
operations; its ability to attract new members or to increase or maintain
premium rates; the non-renewal or termination of its government contracts,
unsuccessful bids for business with government agencies or renewal of government
contracts on less than favorable terms; failure of independent agents and
brokers to continue to market its products to employers; a failure to obtain
cost-effective agreements with a sufficient number of providers that could
result in higher medical costs and a decrease in membership; negative publicity
regarding the managed health care industry generally or Coventry in particular;
a failure to effectively protect, maintain, and develop its information
technology systems; compromises of its data security; periodic reviews, audits
and investigations under its contracts with federal and state government
agencies; litigation, including litigation based on new or evolving legal
theories; volatility in its stock price and trading volume; Coventry's
indebtedness, which imposes certain restrictions on its business and operations;
an inability to generate sufficient cash to service its indebtedness; Coventry's
ability to receive cash from its regulated subsidiaries; and an impairment of
Coventry's intangible assets. For a further discussion of risks and
uncertainties, please see the risk factors described in Coventry's Annual Report
on Form 10-K for the year ended December 31, 2011 ("Coventry Annual Report"),
Coventry's Quarterly Report for the quarter ending March 31, 2012 ("Coventry
First Quarter 10-Q"), and Coventry's Quarterly Report for the quarter ending
June 30, 2012 (together with Coventry's First Quarter 10-Q, "Coventry Quarterly
Reports"), each on file with the SEC. You should also read the Coventry Annual
Report and the Coventry Quarterly Reports for a discussion of Coventry's
historical results of operations and financial condition. Except to the extent
required by applicable law, Coventry does not intend to update any such forward
looking statements.
No assurances can be given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of them do occur,
what impact they will have on the results of operations, financial condition or
cash flows of Aetna or Coventry. Neither Aetna nor Coventry assumes any duty to
update or revise forward-looking statements, whether as a result of new
information, future events or otherwise, as of any future date.
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