Aetna, Humana Call Off $37 Billion Deal

Feb. 15--Aetna Inc. has ended its 19-month effort to buy Humana Inc., ruling out an appeal of a federal court decision striking down the $37 billion health insurance deal as anticompetitive.

The two companies said Tuesday the decision was mutual.

Aetna Chief Executive Officer Mark Bertolini said the combined company would have improved health care and made it more affordable, but the "current environment makes it too challenging to continue pursuing the transaction."

Humana's CEO, Bruce D. Broussard, made light of the span of the deal from July 2015 when the two parties agreed to it and its breakup up Tuesday.

"On a lighter note, we find it ironic that we signed the agreement with Aetna on Independence Day weekend and the deal has officially broken on Valentine's Day," he told investor analysts on a conference call.

Broussard brushed off the collapse of the Aetna deal, saying Humana is "excited about the prospects of operating independently."

Shares of Aetna closed more than 3 percent higher, at $125.81, while Humana ended the day down a fraction of 1 percent, closing at $205.97.

As required in the agreement, Aetna, based in Hartford, will pay the Louisville, Ky.-based Humana $1 billion to end the deal. Humana said it expects $630 million after taxes.

Humana announced an accelerated share repurchase program of $1.5 billion in the first quarter and the remainder during the rest of the year. It also is increasing its dividend to 40 cents a share, from 28 cents.

Aetna is terminating its agreement to sell certain Medicare Advantage assets to Molina Healthcare Inc. and will pay "applicable fees." Aetna's deal with Molina was an attempt to divest itself of assets to allay concerns over competition.

A federal judge blocked the Aetna-Humana deal in January, siding with the U.S. Department of Justice and eight states that sued to halt it. He rejected the insurers' assertion that combining the companies would lead to billions of dollars in cost efficiencies, some of which would be passed on to customers.

Opponents argued that the merged companies would have too great a concentration in Medicare Advantage plans and individual health insurance plans available on public exchanges under the Affordable Care Act. Federal law limits such concentration.

The deal raised fears that Connecticut could lose jobs -- and possibly the headquarters of Aetna, which has been in Hartford since the mid-19th century. Bertolini had said the agreement with Humana required Aetna to move at least some jobs to Kentucky.

There is still discussion Aetna could move some portion of the company to Boston, according to Courant sources. It is unclear if it would involve moving the company headquarters.

Lawyers and industry analysts said Aetna had an uphill climb to win an appeal overturning the decision. Several experts said the findings of fact could not be disputed in an appeal and the judge supported his ruling with detailed case law.

"It's hard enough to keep a transaction together even if there's not a litigation threat," said Elai Katz of the law firm Cahill, Gordon & Reindel.

Employees get nervous about their jobs and key customers and suppliers question the company's strategy, he said.

Bertolini enthusiastically sold the proposed acquisition, starting with his announcement in July 2015. He cited Humana's Medicare Advantage business, the popular private insurance handling Medicare coverage for seniors.

"We have long admired Humana's culture, innovation track record and industry-leading Medicare Advantage franchise," he told employees in announcing the deal.

The purchase "is clearly transformative for us," he said.

When the deal was announced, 24 percent of Aetna's revenue was from Medicare business, which would have jumped to about 47 percent with the Humana acquisition.

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