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Aetna May Divest Parts of its Business to Acquire Humana

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Aetna Inc. is planning to shed some of its Medicare Advantage business in some markets, as per sources. Aetna hopes the divestures will address federal regulators’ concerns regarding its proposed acquisition of Humana Inc. (HUM - Free Report) .

The assets to be sold are worth billions of dollars. But it has become necessary for Aetna to trim these operations to establish that its $37-billion acquisition of Humana will not quell competition in several markets.

The company has not yet finalized the assets to be sold but its advisers are busy identifying Medicare Advantage (“MA”) business in those markets where operations of both companies overlap significantly.

Last week, California’s insurance commissioner made a desperate attempt to block Aetna’s acquisition of Humana. The commissioner said that the deal would curb competition in the state and further shrink the already concentrated health insurance market.

Aetna is considering the sale of some of its MA business in order to get the green signal from regulators so that the deal can be sealed as per schedule. So far, the acquisition has received approval from 14 states of the 20 necessary states. The company is also working closely with the Justice Department, which is reviewing the deal.

Aetna has been bound to divest its MA business, in which Humana also has a strong franchise. With Humana, the combined company will have 47% of its business from Medicare. Together, the companies would lead Medicare Advantage plans by a large margin. This would also lead to greater concentration of the combined company in MA business, which is in huge demand due to the large aging baby boomer population. It is feared that the emergence of a single big MA player can be unfavorable for consumers in the form of high premiums and low quality of service.

The Aetna-Humana deal is not the only one being closely scrutinized by the Department of Justice. The proposed acquisition of Cigna Corp. (CI - Free Report) by Anthem Inc. is also being monitored by the Justice Department as this mega merger will also end up reducing the number of players in the industry.

Aetna carries a Zacks Rank #3 (Hold).

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