Strategy

Aetna, Humana Walk Away From $34B Merger

The insurers cited the Jan. 23 ruling in which a federal judge found the deal would substantially reduce competition in the Medicare Advantage market.
Matthew HellerFebruary 14, 2017
Aetna, Humana Walk Away From $34B Merger

Aetna and Humana have decided to scrap their proposed $34 billion megamerger rather than challenge a judge’s ruling finding the deal would stifle competition.

The companies announced the termination of their merger agreement on Tuesday, citing Judge John D. Bates’s Jan. 23 ruling in an antitrust case brought by the Department of Justice. The agreement was set to expire on Wednesday.

“While we continue to believe that a combined company would create greater value for health care consumers through improved affordability and quality, the current environment makes it too challenging to continue pursuing the transaction,” Aetna CEO Mark T. Bertolini said in a news release.

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“We are disappointed to take this course of action after 19 months of planning, but both companies need to move forward with their respective strategies in order to continue to meet member expectations,” he added.

Aetna will pay Humana a breakup fee of $1 billion, or $630 million after taxes. In trading Tuesday, Aetna’s stock was up 2.2%, at $124.75, while Humana dropped slightly to $205.13.

The two healthcare insurers announced the merger in July 2015 but the DoJ filed its antitrust suit a year later, arguing the deal would lead to higher prices for seniors and the disabled on Medicare as well as people who use the individual insurance program created under the Affordable Care Act.

After a 13-day trial, Judge Bates ruled the deal would violate antitrust law by substantially reducing competition in the Medicare Advantage market and in some of the ACA exchanges. Medicare Advantage covers health benefits for 18 million Americans and competes with traditional government-run Medicare.

Aetna initially said it was giving “serious consideration” to an appeal. Wall Street analysts weren’t surprised that it decided to walk away from the deal instead.

“We had viewed a successful appeal as highly unlikely given the decisiveness of the lower court’s opinion and a DoJ settlement as a longshot,” Evercore ISI analyst Michael Newshel wrote in an research note.

Last week, another federal judge struck down Anthem’s proposed $54 billion takeover of Cigna, finding would be anticompetitive, but Anthem has appealed the decision.