Aetna, Humana plan separate futures after dissolving merger plans

Aetna Inc. and Humana Inc. announced the termination of their merger agreement as a mutual decision following a January 2017 federal district court ruling enjoining the merger. Aetna is now on the hook for a $1 billion “breakup fee” to Humana, as well as a termination fee for ending its agreement to sell Medicare Advantage (MA) assets to Molina Healthcare, Inc. (Molina).

Merger enjoined

In the decision enjoining the merger, the D.C. District Court focused on the merger’s impact in the MA market, and believed that the divestiture of some MA assets was insufficient to alleviate antitrust concerns (see Aetna’s $47 billion purchase of Humana enjoined, January 23, 2017). The Molina deal involved two separate agreements with the merging companies, which would have resulted in Molina gaining about 290,000 MA members for a total of about $117 million in cash. The federal government also challenged the merger’s potential anticompetitive effect on the health insurance marketplaces, even after Aetna’s withdrawal from the marketplaces in 11 states for the 2017 plan year. The court agreed with the government, finding that Aetna withdrew from competing in the 17 complaint counties for 2017 specifically to evade judicial scrutiny of the merger.

Aetna

Aetna’s Chairman and CEO Mark Bertolini stated that pursuing the merger further would be “too challenging,” despite Aetna’s belief that a combined company would benefit consumers. Bertolini noted that the companies have spent 19 months planning the deal, and spoke of Aetna and Humana’s mutual respect. Although the companies will now move forward separately, they share the goal of moving toward a health system centered on consumer needs.

On or about March 16, 2017, Aetna will redeem a large number of senior notes for cash, all of which were due at some point from June 2019 through June 2046. Aetna will fund this redemption with the proceeds of notes issued last year.

Humana

Humana’s initial press release was briefer than Aetna’s, announcing the mutual termination of the agreement and the expectation of receiving about $630 million from Aetna’s breakup fee payment, after tax. Humana expects to release 2017 financial guidance and a strategic plan update.

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