Barclays’ research review of the recent acquisition of Coventry Health Care, Inc. (NYSE:CVH) by Aetna Inc. (NYSE:AET) is highly appreciative of the merger.

Barclays Atena Coventry

Though the stock rating for Aetna Inc. (NYSE:AET) is maintained unchanged at Overweight, and so is the Price Target at $55, it would be useful to look at the many factors that are highlighted in the report, and which are expected to work in favor of the acquisition.

  1. On an overall basis, the merger would be a win-win for both parties. Coventry Health Care, Inc. (NYSE:CVH) shareholders get a very decent price that may well improve in the event of appreciation in Aetna Inc. (NYSE:AET)’s stock. Aetna gets an excellent asset base in Coventry Health Care, Inc. (NYSE:CVH) that would boost Aetna’s business across all segments, and on an accretive basis.
  2. Though the transaction will be marginally accretive to earnings in 2013, up to $0.90 accretion could be achieved by 2015.
  3. Aetna gets a foot in the door in government programs and better scale in commercial operations.
  4. The transaction may be viewed positively by many shareholders, as it removes the risk of a highly capital dilutive acquisition in a bid to acquire scale by Aetna.
  5. The merger integration could be very smooth, given the common culture of cost control and financial discipline that both the companies share.
  6. Barclays points out that the companies have assumed operational synergies of $400 million arising from the transaction. However, this does not include revenue synergies such as cross-selling to CVH customers. These could be an additional bonus from the merger.
  7. The deal helps Aetna to diversify its product offering and increase membership across the Medicaid MA and Part D plans.
  8. The elections are unlikely to affect the deal, since it is largely predicated on the need to diversify business, ramp up operational scale, and financial accretion.
  9. The deal is unlikely to face regulatory problems relating to anti-trust issues because there is not much overlapping between the membership bases of the two companies.

Aetna Inc. (NYSE:AET) is presently trading at $40.02 down 0.45 percent. Yesterday, the stock rose over 5% on the news.

Barclays PLC sums up the transaction with the following statement:

Overall, we would consider this a positive for both companies, something of a rarity
in managed care. Obviously, Coventry shareholders get a 29% premium to its 30 day
average trading price (which we expect to translate into a higher price if Aetna shares
trade up), as well as the highest price since June 2008, Aetna shareholders get a
valuable set of assets that help augment the company’s operations in almost every
segment. Additionally, that comes not only without financial strain, but with accretion.