Aetna Inc. (AET), a health insurer, agreed to buy Coventry Health Care Inc. (CVH) for $5.7 billion as it expands in government-funded medical care, the Wall Street Journal reported, citing people familiar with the matter.
Aetna will pay $42.08 a share for Coventry, with 65 percent of the amount in cash and the rest in stock, the report said. That would be 20 percent higher than the Aug. 17 closing price of the Bethesda, Maryland-based company.
The insurer’s rivals, including UnitedHealth Group Inc. (UNH) and Cigna Corp. (CI), have been buying health-care providers and forming alliances with hospitals and doctors across the U.S. in response to pressure from employers to rein in medical bills. The ventures aim to improve preventive care, closely monitor at-risk patients and determine payments based on quality measures rather than the number of procedures done.
Calls and e-mails to Aetna and Coventry’s media relations contacts posted on their websites weren’t immediately answered outside of normal business hours.
Coventry has climbed 15 percent this year, compared with a 9.8 percent decline for Aetna. UnitedHealth, the biggest U.S. health insurer, has advanced 4.8 percent.
Aetna’s acquisition will increase the proportion of revenue from government business to more than 30 percent from the current 23 percent level, the Journal reported, citing the people familiar. The insurer expects the deal to add about 45 cents to per-share earnings in 2014 and 90 cents in 2015, the report said.
Wellpoint Inc. (WLP) said on July 9 it would pay $4.9 billion for Amerigroup Corp. (AGP) to become the largest private provider of Medicaid plans to low-income patients. Cigna last year agreed to buy HealthSpring for $3.8 billion to build up its Medicare business.
Medicare is the U.S. government health plan for the elderly and disabled, while Medicaid is a joint federal-state program for the poor. Medicaid insurer Centene Corp. (CNC) has risen 45 percent since WellPoint announced the Amerigroup purchase.
Medicaid is expected to add more than 15 million people over the next decade under President Barack Obama’s health-care overhaul, just as states also look to save money by contracting more of their Medicaid business to managed-care companies.
Aetna had adjusted earnings per share of $1.31 in the second quarter, compared with $1.35 a year earlier, the company reported on July 31. Net income for the quarter was $457.6 million, or $1.32 per share.
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