Humana, Aetna call off merger in wake of judge's order - WDRB 41 Louisville News

Humana, Aetna call off merger in wake of judge's order

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LOUISVILLE, Ky. (WDRB) -- Humana and Aetna abandoned their $37 billion merger on Tuesday, ending a 19-month effort to combine the companies.

A federal judge dealt the fatal blow with a Jan. 23 order blocking Aetna's proposed purchase of Humana on anti-competitive grounds.

The companies had said they were considering appealing the ruling, but that would have required extending the deal for several more months with an uncertain outcome.

“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,” Aetna CEO Mark Bertolini said in a news release.

Tuesday's decision means Humana remains a standalone company with more than 12,000 employees in Louisville, its headquarters since its 1961 founding.

"Humana has known from the time the proposed merger was announced that this might be the outcome," Humana spokesman Tom Noland said in an email Tuesday. "We have therefore planned carefully for it, and are fully prepared to continue to go forward as an independent company."

However, analysts have speculated that other healthcare industry players could try to snap up Humana and its growing Medicare Advantage business.

UPDATE, 5:40 pm: Humana CEO Bruce Broussard told analysts in a conference call that the company would be open to other takeover offers given executives' responsibility to get the "best return" for shareholders.

"We would obviously look at and review any kind of interest into the organization and not just set it aside," Broussard said.

At the same time, Humana would consider the "probability and timing to complete a (new) transaction" given the failure of the Aetna deal, Broussard said.

Leerink Partners analyst Ana Gupte said in a note to clients last week that there's a "strong likelihood" that Bloomfield, Conn.-based Cigna and Indianapolis-based Anthem will make a run at Humana following a different judge's order blocking Cigna and Anthem's own tie-up.

In fact, Cigna likely made the first offer for Humana in April 2015, three months before Humana agreed to terms with Aetna. Humana described the events leading up to the Aetna deal in a regulatory filing in August 2015.  

Cigna's Medicare Advantage business is less than half the size of Aetna's, meaning Cigna's combination with Humana might pose fewer anti-competitive issues, Reuters reported last week.

Anthem said last week that it would appeal the judge's ruling blocking its purchase of Cigna, but Cigna wants out of the deal. Cigna said it was withdrawing from the merger on Tuesday and suing Anthem for damages. Anthem disputed Cigna's right to walk away. 

Humana's stock continued to hover around $205 a share on Tuesday. 

Humana's shares are buoyed by investors' belief that Cigna or Anthem may be interested in Humana, Stifel Financial Corp. analyst Tom Carroll said in a note Tuesday.

"In our view, that is plausible but not likely in the near term," he wrote in the note.

In any event, Humana's Medicare business should get a boost if Congressional Republicans and President Trump move to "deregulate Medicare Advantage and drive privatization" of the government's health insurance program for seniors, Gupte wrote last week.

Humana is the No. 2 Medicare Advantage insurer in the country behind United Healthcare. Medicare Advantage is a privately managed alternative to traditional Medicare in which companies get fixed payments to manage benefits for Medicare patients. 

Because the antitrust problems scuttled the deal, Humana will collect a $1 billion break-up fee from Aetna -- which amounts to about 2 percent of Humana's annual revenue. The company said it will gain about $630 million after taxes.

In a statement, Louisville Mayor Greg Fischer said the decision to call off the merger "provides clarity and signals a tremendous future for Humana and its legacy of civic participation and leadership in Louisville."

"Humana has been a world-class company throughout its 56-year-history, and I am extremely confident and enthusiastic about its future as an independent company," Fischer said.

Greater Louisville Inc. CEO Kent Oyler, whose organization had been a cheerleader for the combination, said Humana "remains a vital organization in Greater Louisville and a valued partner of GLI.

"We continue to work with the Humana team to grow their company and our regional economy," Oyler said.

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