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Aetna Nearing Deal To Buy Humana

Aetna Inc. is reportedly nearing the acquisition of Humana Inc., and could reach a deal as early as this weekend, Bloomberg reports.

Citing people familiar with the developments, Bloomberg reports Aetna made a formal bid this week in the form of cash and stock, though Humana is said to have received two offers, one from Aetna and another from Cigna.

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Humana board prefers Aetna’s offer

According to the Bloomberg report, discussions between Aetna Inc., the second largest U.S. health insurer by market value and Louisville-based Humana, Inc. have intensified during recent days, after it emerged over the weekend that rivals Anthem Inc., and Cigna Corp had held merger talks of their own.

As outlined by ValueWalk, Anthem announced last week it had offered $47 billion in cash and stock for smaller rival Cigna, who rebuffed the offer the next day. The proposed acquisition was expected to create a premier health benefits company with the critical diversification and scale to lead the transformation of health care delivery for consumers.

Citing people with knowledge of the matter, Bloomberg reports Aetna’s formal cash and stock bid for Humana could probably value Humana above its $28 billion market capitalization as of Wednesday’s close.

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However, Humana has reportedly received two distinct offers from Aetna and Cigna, though Humana board reportedly prefers the offer from Aetna.

Last month, ValueWalk reported that Humana had received takeover interest from potential buyers and Humana was engaged in preliminary discussions with Aetna and Cigna.

Obamacare fuels opportunity

The U.S. health insurance sector is undergoing a period of intense deal activity, with the five largest insurers based on market value all working either to sell themselves or buy a rival. Analysts have considered Humana as one of the five health insurance providers that are ripe for consolidation. The other companies are Aetna, Anthem, Cigna, and UnitedHealth Group.

Should Humana agree to sell itself to Cigna, it would run the risk of Cigna’s shareholders voting down a deal to try and trying to persuade the company to sell itself to Anthem.

Though no agreement between Humana and Aetna has been reached, it is felt Humana could still agree to a different transaction, such as selling itself to Anthem, which has also earlier expressed interest, or even to Cigna.

To complicate the situation even further, it is believed United Health Group Inc., the largest U.S. health insurer, could also make a bid for Aetna.

Humana’s 3.2 million Medicare Advantage members have made it a target, as more Americans turn 65 and become eligible for the health program for the elderly and its private insurer-run version. Medicare Advantage membership is anticipated to rise to 68.4 million in 2023, up 26% from this year, according to the Centers for Medicare & Medicaid Services.

All of the recent consolidation talk has been fueled by the Patient Protection and Affordable Care Act, popularly known as Obamacare. The 2010 law overhauled the U.S. health-care system with new rules that envisages providing subsidies to facilitate people afford insurance, creating millions of new customers that the companies are racing to capture.

The recent Supreme Court decision also keeps U.S. subsidies flowing to over 6 million people to help them afford health insurance from Aetna, Humana and other health insurers.

Mirroring the latest developments, shares of Humana jumped over 8% after trading was briefly halted for volatility.