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.
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.
- 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.
- Though the transaction will be marginally accretive to earnings in 2013, up to $0.90 accretion could be achieved by 2015.
- Aetna gets a foot in the door in government programs and better scale in commercial operations.
- 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.
- The merger integration could be very smooth, given the common culture of cost control and financial discipline that both the companies share.
- 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.
- The deal helps Aetna to diversify its product offering and increase membership across the Medicaid MA and Part D plans.
- 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.
- 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.