E Health Insurance Merger Mania: Who's Next ?

Healthcare reform has significant impact in the entire health care sector. The Affordable Care Act was intended to cut healthcare costs, and the Supreme Court recently removed much of the remaining uncertaintiees. Obviously health care providers including hospitals and insurance firms need to improve operating efficiency and cut the costs. ACA kick-started industry consolidation from hospitals to Health insurance companies.

Last week Centene (CNC) announced an offer to acquire Health Net (HNT). Centene provides services to under-insured and uninsured individuals. Its managed care segment offers Medicaid related coverage to individuals through government subsidized programs. Its specialty services segment provides services to behavioral healthcare programs. 

Under the terms of agreement Centene is going to pay 0.622 shares of Centene plus $28.25 cash per Health Net common stock. Based on the July 1 closing stock price it is valued at $78.57 per share. (0.662 X $80.90 = $50.32, plus $28.25 = $78.57 / share)

Net Purchase price = $78.57 * 77.14 million shares = $6.06 Billion and $500 million debt. It is estimated that the total acquisition cost is $6.8 Billion.

With the Health Net acquisition Centene going to add 6 million new members,  out of them 1.6 million Medicaid members. Pro Forma revenue for the year 2015 is going to be $37B. Centene is estimating $75m synergies in the first year, $150m by end of the second year and 20% accretive Earnings per share in the first full year.

On Friday July 3, Health Insurer Aetna (AET) announced it is acquiring another Insurance firm Humana (HUM) for $37 billion in a combination of stock and cash. Humana shareholders get $125 in cash and 0.8375 Aetna common shares for each Humana share, or $230 per share. This will add additional 14 million members to Aetna’s health insurance portfolio and is projecting $1.25B in annual synergies in 2018.

As consolidation in healthcare insurers keeps happening, the five biggest insurers - UnitedHealth (UNH), Anthem (ANTM), Aetna, Humana and Cigna (CI) - will become eventually, I believe, a big three of firms. As many experts in the health insurance industry are speculating, I am also expecting the next low hanging fruit for acquisition to be Cigna Healthcare. Cigna, based out of Bloomfield, Connecticut, collected $31B in insurance fees and premiums last year and had approximately $35B total revenue. Last year Cigna grew its premiums by seven percent and its global customers to 14.5 million.

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Disclosure : Long on Cigna

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Ravindra Dasari 5 years ago Member's comment

Excellent analysis. Thanks for posting.

Susan Miller 6 years ago Member's comment

Excellent analysis, thank you.

Craig Newman 6 years ago Member's comment

Thanks for sharing, I've added you to my follow list.