US health insurer Aetna buys rival Humana in $35bn deal

Aetna has agreed to buy rival health insurer Humana paying about $35 billion in cash and stock for the second-largest US provider of private health plans for the elderly.

The transaction, which prices Humana at $230 a share, combines the second- and fifth-largest US health insurers by market size.

The deal values Humana at 23 per cent more than its closing price on Thursday, and including assumed debt totals about $37 billion.

The acquisition is part of a merger frenzy as the five biggest US health insurers look to get bigger. The 2010 health reform law known as Obamacare spurred deals by introducing rules that push insurers to look for savings, and by creating millions of new customers.

Humana's 3.2 million Medicare Advantage members made it a target: it's winning new business as more Americans turn 65 and become eligible for the health program for the elderly and its private insurer-run version.

"The future of health insurance in the US is enrolling publicly funded people," Jeff Goldsmith, the president of consultant Health Futures, said by phone. "Doubling down on Medicare Advantage is a really good bet."

Humana shareholders will receive $125 in cash and 0.8375 of an Aetna share for each of Humana’s. The companies expect the deal to close in the second half of 2016.

Aetna chief executive Mark Bertolini will be chairman and CEO of the combined company. It's too early to say what roles other executives will take, Tom Noland, a Humana spokesman, said.

Together, Aetna and Humana would have more than 33 million health insurance customers and about $115 billion in annual revenue, creating the second largest US health insurer by sales, after UnitedHealth Group.

Aetna specializes in commercial coverage, while Humana is a leader in Medicare.

The transaction is poised to be the biggest ever in the health-insurance industry, according to data compiled by Bloomberg. Still, it may soon be surpassed. Cigna last month rejected a $47 billion bid from Anthem, saying the offer wasn't in the best interests of shareholders and that Anthem executives weren't fit to lead a merged insurance giant. The combined company would be the biggest in the US by customers, topping UnitedHealth.

UnitedHealth had considered whether to pursue deals with Cigna or Aetna, the Wall Street Journal reported last month.

Centene on Thursday agreed to buy Health Net for about $6.3 billion in a deal that creates the biggest private administrator of Medicaid, the federally funded health program for the poor. – Bloomberg