Aetna, Humana walk away from $34 bln deal after court ruling

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By Caroline Humer

<span class="articleLocation”>Health insurers Aetna Inc and Humana Inc walked away from their $34 billion merger deal on
Tuesday, after a U.S. judge ruled in January the combination
would stifle competition in the private Medicare Advantage
program for retirees.

After the Jan. 23 court ruling, Aetna and Humana had said
they were weighing whether to appeal the decision and extend
their agreement, which was set to expire on Feb. 15.

Aetna and Humana announced the deal in July 2015, just a few
weeks before Anthem Inc and Cigna Corp said they
would also combine. A year later, the U.S. Justice Department
sued to block both transactions and won in separate lawsuits,
derailing what would have been a massive industry consolidation
to three insurers from five.

Aetna will pay Humana a $1 billion breakup fee, or $630
million after taxes, and terminated its plan to sell some
Medicare Advantage assets to Molina Healthcare Inc, the
companies said.

Aetna had argued in court that even with the merger there
would be ample competition for Medicare Advantage. The privately
run program covers health benefits for 18 million Americans and
competes with traditional government-run Medicare, which covers
the balance of the 55 million people 65 and older as well as the

But it had offered to sell the assets to Molina to try to
win Justice Department approval.

“While we continue to believe that a combined company would
create greater value for health care consumers through improved
affordability and quality, the current environment makes it too
challenging to continue pursuing the transaction,” said Aetna
Chief Executive Officer Mark Bertolini.

Wall Street analysts said the move was expected and
reiterated that they believed Humana could be a target for Cigna
or Anthem once they walk away from their own deal.

“We had viewed a successful appeal as highly unlikely given
the decisiveness of the lower court’s opinion and a DOJ
(Department of Justice) settlement as a longshot,” Evercore ISI
analyst Michael Newshel wrote in an research note.

Humana plans to hold a conference call later Tuesday to
provide its 2017 financial outlook.

Anthem last week filed an appeal of the court’s ruling, but
expectations for winning are seen as scant. The two companies
have argued over the roles of the top executives and business
strategy, according to court documents.

Aetna, which had issued debt to acquire Humana, said it was
redeeming the notes for cash.

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