Insurer Aetna Inc. has signed a deal to buy rival Coventry Health Care Inc. for $5.6-billion in cash and stock, the latest in a string of multibillion-dollar acquisitions in the U.S. health care sector.
Aetna will pay $27.30 in cash and 0.3885 shares for each Coventry share held, a total value of $42.08 per share, Coventry and Aetna said in a joint statement.
The deal is at a 20.4 per cent premium to Coventry's Friday closing stock price of $34.94.
Including the assumption of Coventry debt, the sale is valued at $7.3-billion, the companies said.
The deal is the latest example of companies focusing on increasing their government business to benefit from a favourable U.S. health care reform.
Earlier this year, the U.S. Supreme Court upheld President Barack Obama's health care law, which aims to extend coverage to more than 30 million uninsured Americans.
The U.S. health care reform, passed in 2010, aims to provide coverage for 16 million more Americans through privately run health insurance exchanges in each state, and will expand Medicaid eligibility for an additional 16 million people by raising limits on household income.
The acquisition of Coventry will help Aetna to lift its share of revenue from its government business to over 30 per cent from 23 per cent.
Aetna said it expects to finance the cash portion of the transaction with a combination of cash on hand and by issuing about $2.5-billion of new debt and commercial paper.
The deal is expected to add modestly to Aetna's operating earnings per share in 2013, 45 cents in 2014 and 90 cents in 2015.
Aetna's shares closed at $38.04 on Friday on the New York Stock Exchange.
In July, health insurer WellPoint Inc. said it would buy rival Amerigroup Corp. for $4.46-billion, nearly doubling its Medicaid business.
Last October, Cigna Corp. agreed to buy HealthSpring Inc for $3.8-billion to strengthen its Medicare business.