Aetna Considering All Options After Merger Rejection
Jan. 25--Aetna Inc., stung by a federal judge's rejection of a key acquisition, said Tuesday it will consider "all available options," though it faces daunting odds overturning the ruling and may now have to seek new ways to stoke growth.
CEO Mark Bertolini staked a lot on Aetna's proposed $37 billion purchase of Humana Inc., insisting in August, "We're going to get the deal done."
But U.S. District Judge John Bates shut it down Monday. In a 158-page decision, he said the proposed purchase would weaken competition and harm consumers in counties where the two insurance giants compete. He sided with the Obama administration, which last summer challenged the Aetna-Humana deal and a separate $48 billion purchase proposed by Anthem Inc. of Cigna Corp.
Bertolini and Humana CEO Bruce Broussard issued their first response Tuesday.
"After putting forward a compelling case that addressed each of the Department of Justice concerns, we are disappointed with the court's decision and will carefully consider all available options," they said in a joint statement.
The CEOs stopped short of pledging to appeal Bates' decision, a possibility raised Monday in a statement from Aetna. If the merger collapses, Aetna is required to pay Humana a $1 billion fee under the agreement between the two companies.
Several observers said the likelihood of reversing Bates' decision on appeal is slim. The ruling was "pretty tight and made pretty clear that Aetna's arguments fell apart in many places," said Spencer Perlman, an analyst at Height Securities in Washington, D.C.
Bertolini told shareholders in May that Aetna was required to establish a presence in Kentucky when it sought to acquire Humana and "the rest of all of our real estate is under review."
The loss of the deal with Humana, based in Louisville, Ky., might take off the table, at least for now, the issue of a jobs exodus from Hartford. Connecticut's capital city has been home to Aetna since 1853. The company has 6,000 employees in Connecticut.
Other cities may be trying to lure Aetna. The Boston Globe reported Tuesday, without attribution, that officials in the administrations of Massachusetts Gov. Charlie Baker and Boston Mayor Marty Walsh were waiting for the Humana deal to be resolved before again reaching out to the insurer.
Kelly Donnelly, a spokeswoman for Gov. Dannel P. Malloy, said in an email that he has "reached out to executive leadership" at Aetna.
Hartford Mayor Luke Bronin said in a statement Tuesday that Connecticut and Hartford "just need to stay focused on being the best partners we can be to our employers, and Aetna is one of our most important employers."
Bertolini made the purchase of Humana a centerpiece of Aetna's growth strategy, helping to drive up revenue and extend Aetna's reach into new and lucrative Medicare Advantage markets. Medicare Advantage provides a type of Medicare health plan offered by private companies contracting with Medicare to provide health and hospital insurance.
Bertolini told analysts in August that the Humana deal "allows us to get at certain assets and certain markets sooner than we otherwise would if we had to build it or buy it in other ways."
Still, Aetna has a "Plan B on the sideline," he said. A spokesman on Tuesday would not discuss details of an alternative.
Aetna's next strategic step is now unclear.
"No question it's a setback for the company and additional setbacks for Mark Bertolini," Perlman said. "There's no question this is a critical component of their strategic plans going forward. They staked a lot on this and getting the ruling they got was a setback."
Aetna shares closed Tuesday at $117.61, down $1.59 or about 1 percent. Humana ended the day at $199.94, down $5.08, or 2.5 percent. Investors see the collapse of the Aetna-Humana deal as settled, Perlman said.
"There's an assumption on the street this is done," he said.
Jason McGorman, a Bloomberg analyst, said Aetna may turn to other acquisitions and share buybacks. Its sales growth has slowed as it reduces enrollment in public health exchanges, he said.
Aetna has said it prefers Medicare Advantage over Medicaid to capitalize on the growing population of the elderly, "indicating it may try to expand further there," McGorman said.
Aetna "needs something to recharge its sales growth" over the long term, he said.
Gretchen Jacobson, associate director of the Kaiser Family Foundation, said Aetna has been expanding its Medicare Advantage plan offerings and regardless of its reach for Humana, "Aetna intends to continue growth" in Medicare Advantage.
Aetna acquired Coventry Health Care in May 2013, a smaller Medicare Advantage firm that allows Aetna to expand its presence, "though on a much smaller scale," Jacobson said.
Plans by Republicans who control Congress to repeal the Affordable Care Act could benefit Medicare Advantage, she said. Payments had been reduced by the federal health law and repealing it would lead to increased payments, Jacobson said.
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