Connecticut-based Aetna will acquire Maryland-based Coventry Health Care Inc. and assume Coventry's debt, according to a news reelase. The transaction is valued at $7.3 billion.
Each board of directors has approve the agreement in which 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 Aug. 17 closing price of Aetna common shares.
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.
Coventry and its subsidiaries, which include HealthAmerica PA Inc., serve approximately 5 million individuals. Aetna serves approximately 36.7 million people.
The transaction will increase Aetna’s share of revenues from government business from 23 percent to more than 30 percent, significantly growing its Medicaid footprint and adding to its Medicare offerings.
“The transaction also will create a significant synergy opportunity to further Aetna’s efforts to increase our operating efficiency. We expect synergies from the transaction to be $400 million annually in 2015,” said Joseph M. Zubretsky, Aetna’s senior executive vice president and CFO. “These cost efficiencies will support our efforts to drive costs out of the system and offer products at a lower price point in the marketplace.”
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.
Both companies are traded on the New York Stock Exchange, Aetna under ticker AET and Coventry under ticker CVH.