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Recently, Aetna Inc. (AET - Analyst Report) completed the acquisition of Coventry Health Care Inc., which was announced in August last year. As a result, Aetna raised its operating earnings guidance for 2013 to $5.70–$5.85 per share from $5.50–$5.60 per share estimated earlier.

Impact of the Acquisition

Aetna believes that the acquisition will enhance its financial and strategic expertise to meet the evolving needs of customers. The takeover has expanded the government programs business of the company.

As a result, Aetna’s medical membership has increased by 3.7 million and its Medicare Part D enrollment has surged by 1.5 million. Additionally, its Medicaid membership crossed the 2 million mark, rising from 1.1 million earlier.

Moreover, Aetna’s Medicaid business now has presence in 16 states, compared with 12 states earlier. The company has been focusing on expanding its government programs, apart from vertical and horizontal expansion of its insurance business, as the government programs business is currently undergoing rapid growth.

Rating Changes

As a result of the closure of the deal, Fitch Ratings has affirmed the issuer default rating of Aetna at “A” and the insurer financial strength rating of its operating subsidiaries at “AA-“. Additionally, the rating agency removed these ratings from “Rating Watch Negative”. However, these ratings still carry a negative outlook.

Background

On Aug 20, 2012, Aetna signed an agreement to acquire Coventry Health for $7.3 billion. The purchase consideration also includes the takeover of the latter’s debt.

As per the agreement, shareholders of Coventry Health will get a cash consideration of $27.30, along with 0.3885 Aetna shares, for each Coventry Health share. This translates into a total purchase consideration of $42.08 per share, based on the closing price of Aetna’s shares on Aug 17, 2012.

Aetna financed the cash component of the purchase consideration using a variety of sources, including cash in hand at the companies as well as new debt and commercial paper issued by Aetna.

Zacks Rank

Aetna currently carries a Zacks Rank #2 (Buy). Other health maintenance organizations worth considering are Molina Healthcare Inc. (MOH - Analyst Report), Health Net Inc. (HNT - Analyst Report) and Humana Inc. (HUM - Analyst Report). Both these companies carry a Zacks Rank #2 (Buy).

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