The Wall Street Journal reports Aetna Inc. has placed an acquisition bid for Humana Inc., while UnitedHealth Group Inc. has placed a takeover bid for Aetna itself.
Humana reportedly privately offered itself to be bought by other managed-care firms, which in turn sparked takeover interest from Aetna and Cigna Corporation over a month ago. Humana had hired Goldman Sachs to help it ignite acquisition interest among the leaders in the managed-care industry.
According to people familiar with the matter, the proposal was made by Aetna last week but there is no information regarding the financial terms of the proposal yet. So, it’s unknown for now as to how much Aetna aims to pay to acquire Humana, which has a market value of $30 billion.
Earlier this week, Mayor Greg Fischer warned investors against reading into every detail and development reported for the matter: “Look, Humana is a major player – a top five player in a big industry, so they are always going to be in play whether they are buying or people are talking about buying them.”
He added: “You have a deal that could fall apart, Humana could be doing something we don’t know about [and] so as a city, we’ve got to make sure we have the right workforce here so no matter what, we grow.”
What Makes Humana An Attractive Acquisition Target?
Last year, Aetna reported revenues of $58 billion, while Humana had revenues totaling up to $48.5 billion. Humana generates a major chunk of its revenues from its business which administers the private version of the federal Medicare program. Humana is one of the most attractive acquisition targets because of its ultra-strong Medicare franchise, which has been reporting exponential growth.
The rapid growth is mainly attributed to the growing age of the baby boomers, who have now graduated for the eligible age to opt for the said plans, known as Medicare Advantage.
What’s Happening In The Industry?
According to Bloomberg, the managed care industry is currently consolidating at a rapid pace. The consolidation frenzy has led to M&A activity worth as much as $108.5 billion in the healthcare-services industry. In a recent event, Anthem Inc. placed a $47.5 billion acquisition offer for Cigna, which was refuted because it was “inadequate and not in the best interests of Cigna’s shareholders.”
Cigna, however, has been reported to be interested in acquiring Humana, the managed care for which Aetna has placed its offer. Aetna in return has been reported to be an acquisition target for UnitedHealth. The five companies are continuously making efforts to increase their size, become more effective, and have better response rates to the changes in the US healthcare industry – which are a result of the Affordable Care Act and other such developments and regulations.
Date: June 22, 2015