Health insurance companies may combine as Aetna makes offer for Coventry

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The American consolidation would be worth $5.6 billion if accepted.

Health insurance company, Aetna Inc., has made a $5.6 billion offer to acquire its competitor, Coventry Health Care Inc., in order to boost its share of the most rapidly growing American government-backed Medicaid and Medicare programs.

Aetna would gain over 5 million customers if this purchase is completed.

This most recent announcement is made right on the heels of another major acquisition, when WellPoint Inc. purchased Amerigroup Corp. in a massive broadening of its Medicaid busInsurance Newsiness. This type of consolidation of health insurance companies is being seen by investors and bankers as a wave at the moment, that will likely continue to occur as the healthcare overhaul by President Obama continues to be implemented.

The new law is working to provide 16 million more lower income Americans with health insurance.

This coverage will be offered through privately run state based exchanges that work like marketplaces, as well as a notable expansion of the eligibility for Medicaid by increasing the household income limits. This acquisition would make Aetna a much larger player in these government programs and would give its commercial operations more weight. This is being seen by analysts as strategically important and these moves are expected to continue as the exchanges and healthcare reforms continue to be implemented in the lead up to 2014.

The deal being offered has Aetna paying $42.08 per share, which would be made up of $27.30 in cash, as well as 0.3885 in its own common shares. This would be a premium of 20.4 percent over the actual stock price for Coventry that closed at $34.94 before the offer was made. The chief executive officer of Aetna, Mark Bertolini, stated that the revenue for the two companies combined, this year, was estimated at $50 billion. He also pointed out that this acquisition, which should close in the summer of 2013, will increase the Medicaid membership at Aetna twofold.

This deal will also assist Aetna in boosting their health insurance members by almost 4 million, as well as adding another 1.5 million members in Medicare Part D.

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