Aetna, Humana Officially End Merger Deal; Won’t Appeal Court Ruling

February 14, 2017

Health insurers Aetna Inc. and Humana Inc. walked away from their $34 billion merger deal on Tuesday, after a U.S. judge ruled in January the combination would stifle competition in the private Medicare Advantage program for retirees.

After the Jan. 23 court ruling, Aetna and Humana had said they were weighing whether to appeal the decision and extend their agreement, which was set to expire on Feb. 15.

Aetna and Humana announced the deal in July 2015, just a few weeks before Anthem Inc. and Cigna Corp. said they would also combine. A year later, the U.S. Justice Department sued to block both transactions and won in separate lawsuits, derailing what would have been a massive industry consolidation to three insurers from five.

Aetna will pay Humana a $1 billion breakup fee, or $630 million after taxes, and terminated its plan to sell some Medicare Advantage assets to Molina Healthcare Inc, the companies said.

Aetna had argued in court that even with the merger there would be ample competition for Medicare Advantage. The privately run program covers health benefits for 18 million Americans and competes with traditional government-run Medicare, which covers the balance of the 55 million people 65 and older as well as the disabled.

But it had offered to sell the assets to Molina to try to win Justice Department approval.

“While we continue to believe that a combined company would create greater value for health care consumers through improved affordability and quality, the current environment makes it too challenging to continue pursuing the transaction,” said Aetna Chief Executive Officer Mark Bertolini.

Wall Street analysts said the move was expected and reiterated that they believed Humana could be a target for Cigna or Anthem once they walk away from their own deal.

“We had viewed a successful appeal as highly unlikely given the decisiveness of the lower court’s opinion and a DOJ (Department of Justice) settlement as a longshot,” Evercore ISI analyst Michael Newshel wrote in an research note.

Humana plans to hold a conference call later Tuesday to provide its 2017 financial outlook.

Anthem last week filed an appeal of the court’s ruling, but expectations for winning are seen as scant. The two companies have argued over the roles of the top executives and business strategy, according to court documents.

Aetna, which had issued debt to acquire Humana, said it was redeeming the notes for cash.

(Reporting by Caroline Humer in New York and Ankur Banerjee in Bengaluru; Editing by Lisa Von Ahn and Jeffrey Benkoe)

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