HARTFORD, Conn. & LOUISVILLE, Ky. (July 3, 2015) — Aetna will acquire all outstanding shares of Humana for a combination of cash and stock valued at $37 billion or approximately $230 per Humana share based on the closing price of Aetna common shares on July 2. Aetna and Humana Inc., two of the nation’s largest health insurers, today announced they have entered into a definitive agreement to strike a deal that would close next year.
After closing, Aetna will make Louisville the headquarters for its Medicare, Medicaid and TRICARE businesses, and will maintain a significant corporate presence in Louisville. Founded in Louisville more than 50 years ago, Humana has a long history of contributing to the community.
“My team and I have been in regular contact with company leaders to understand the terms of the merger and what it means for our city and state,” Mayor Greg Fischer said. “Our goal is to keep all existing jobs in Louisville and grow even more. Louisville has a depth of human talent in this important business sector and we will demonstrate that depth to the new owners. We will be fighting to grow Humana-Aetna’s presence in Louisville.”
Gov. Steve Beshear also expressed optimism about the long-term impact of the deal on Kentucky.
“In addition to the information contained in the news release, I have spoken to Bruce Broussard, CEO of Humana, this morning and Mark Bertolini, CEO of Aetna, earlier this week. Based upon all the information available, I am cautiously optimistic that this merger will be a net positive for Louisville and the Commonwealth,” Beshear said.
“Both Humana and Aetna are progressive, innovative companies in the health care field, and that bodes well for the new entity because of the rapidly changing health care landscape,” he said. “Mayor Fischer and I look forward to further conversations with both Mr. Broussard and Mr. Bertolini about the details of the transaction and the potential for the growth of jobs in Kentucky. Both of us are also pleased that the Humana Foundation will be separated out of the transaction and will remain in Louisville.”
The complementary combination brings together Humana’s growing Medicare Advantage business with Aetna’s diversified portfolio and commercial capabilities to create a company serving the most seniors in the Medicare Advantage program and the second-largest managed care company in the United States. The combined entity will help drive better value and higher-quality healthcare by reducing administrative costs, leveraging best-in-breed practices from the two companies — including Humana’s chronic-care capabilities that measurably improve health outcomes for larger populations — and enabling the company to better compete with more cost effective products.
Under the terms of the agreement, which has been unanimously approved by the board of directors of each company, Humana stockholders will receive $125.00 in cash and 0.8375 Aetna common shares for each Humana share. As a result of the transaction, Aetna’s shareholders would own approximately 74 percent of the combined company and Humana’s shareholders would own approximately 26 percent. Aetna expects to finance the cash portion of the transaction with a combination of cash on hand and by issuing approximately $16 billion of new term loans, debt and commercial paper.
Upon closing, which is expected to be in the second half of 2016, the company’s debt-capital ratio is projected to be approximately 46 percent, and management has committed to reducing that ratio below 40 percent over the 24 months following the closing. The transaction is projected to be neutral to Aetna’s 2016 Operating EPS and produce mid-single digit percentage Operating EPS accretion in 2017 and low double-digit percentage Operating EPS accretion in 2018.
The combined company will be well positioned to offer a broad choice of affordable, consumer-centric health care products, helping to constrain cost growth, improve health outcomes, and promote wellness. The combination will provide Aetna with an enhanced ability to work with providers and create value-based payment agreements that result in better care to consumers, and spread cutting-edge clinical practices and quality care.
The combined company would have projected 2015 operating revenue of approximately $115 billion, with approximately 56 percent from government sponsored programs (including Medicare and Medicaid). The combined company will have over 33 million medical members, based on memberships as of March 31, 2015. The combined membership includes Humana’s 3 million TRICARE members, under a program of health care coverage for military families and retirees administered by the U.S. Department of Defense.