A financial analyst who covers Aetna said this week that the health insurer is poised for a large acquisition and that Humana or Cigna are likely targets.
None of the companies would talk about the matter Friday, and the report was strictly one analyst’s informed view.
But it raised worries that an Aetna acquisition of Cigna — two health insurers based in Greater Hartford — would result in large-scale layoffs and damage to the region’s economy.
“Hartford is going to decline in its insurance position … the city [and region] is going to take a jolt” if such an acquisition occurs, said Robert B. Lamb, a professor of management at New York University’s Stern School of Business and the co-author of “Capitalize On Merger Chaos,” a book that analyzes more than 50 years of mergers and acquisitions.
Lamb said that a merger of two similar insurance companies would invariably lead to layoffs and people seeking employment at other companies, including those in other states.
Analysts for investment research firms Leerink Partners and UBS met Monday with Aetna’s CEO, Mark T. Bertolini, and other company executives at the insurer’s headquarters in Hartford.
Leerink analyst Ana Gupte wrote Tuesday in an investor note, “Consolidation remains likely, with CEO Mark Bertolini asserting that government business is the focus for inorganic growth, while compatible cultures for post-merger synergies were viewed as the driver in all transactions.”
Government business refers to Medicare or Medicaid customers as opposed to commercial business, meaning individually sold health plans or group plans that employers offer to workers.
Gupte said cheap debt means that an acquisition of Humana or Cigna would provide Aetna with meaningful growth. She said that such an acquisition was “imminent.”
Also on Tuesday, UBS analyst A.J. Rice wrote in a note to investors that Aetna “expressed confidence that its balance sheet is strong enough to pursue any attractive consolidation opportunity that arises.” Rice wrote that Cigna has “consolidation potential.”
“In our view, Humana and Centene currently incorporate some takeover expectations that may or may not be realized this year,” Rice wrote.
Both Humana Inc. and Centene have operations in other states. Humana is based in Louisville, Ky., and Centene in St. Louis, Mo.
Thousands Of CT Jobs
An Aetna merger with a company the size of Cigna or Humana would catapult Aetna in the marketplace from a distant third place to a position much closer to the largest two health insurers, UnitedHealthcare and Anthem, respectively.
A health insurer is often measured on its total customer base of various health plans, such as commercially sold employer-based plans, individual plans, Medicare and Medicaid plans. In the industry, it’s called medical membership.
If Aetna’s total medical membership of 23.67 million were to be added to either Humana’s 14.18 million, or Cigna’s 14.65 million, the new company would be in close range of becoming the nation’s second-largest health insurer.
UnitedHealthcare’s total membership is 45.77 million. Anthem Inc. has 38.5 million.
Aetna is headquartered in Hartford and has 49,350 workers total, including about 6,100 in Connecticut.
The company’s Connecticut workforce ranged from 7,000 to 7,400 employees between 2006 and 2010. Since then, the company has eliminated jobs through various means, including layoffs, as well as an optional retirement program announced in 2011.
Cigna is headquartered in Bloomfield and has about 37,200 employees, including about 4,200 in Connecticut.
“I don’t know how much their market segments overlap. There’s no question you’re going to lose some executive offices. There’s going to be some consolidation. That’s part of the logic of the merger,” said Fred V. Carstensen, director of the Connecticut Center for Economic Analysis.
The challenge that an acquisition would pose for the state of Connecticut, he said, is how it can get Aetna to relocate operations to Connecticut.
“How do we respond in a constructive, positive, affirmative way that is going to be beneficial to the state?” Carstensen said.
Nick Perna, an economist who taught at Yale University and advises Webster Bank, said that if Aetna were to buy Cigna, the potential for layoffs would depend on what the company does. And it’s still very early to talk about such things because the news is speculation from an analyst — not an announcement by the insurer, he said.
“We’re talking about a hypothetical,” Perna said.
Nevertheless, he said that Connecticut needs to think about its strategy if such an acquisition happens.
“Let’s take this as yet another wake-up call,” Perna said. “And if it doesn’t happen, all the better.”
“But if it does happen, let’s get something out of it. Even if it doesn’t happen, let’s get something out of it,” Perna said. “We’re probably better prepared for the next hurricane than we are for the next large layoff in the state of Connecticut.”
Insurers Mum
Cigna spokesman Matthew Asensio, Aetna spokesman Ethan Slavin and Humana spokesman Alex Kepnes said Friday that their respective companies do not comment on market speculation.
When asked about mergers and acquisitions — often called M&As — during a conference call with analysts on April 28, Bertolini said that the company continues to look for opportunities to grow in the “provider space around technology.”
Provider is a broad term for hospitals, doctors and other clinicians that provide medical treatment to patients. Increasingly, health care has come to rely on new technology, whether that means electronic medical records, health-related mobile apps or video chats with doctors.
“As it relates to larger consolidation of M&A, we have a strong balance sheet and we are paying attention to what’s going on in the marketplace and will react appropriately, or act appropriately, should the opportunity arise,” Bertolini told analysts on April 28.
Date: May 15, 2015