DOJ REPORTEDLY SET TO BLOCK $37B HUMANA-AETNA MERGER; OPPOSITION COULD BE DEAL’S DEATH KNELL; HUMANA STOCK DIVES 4%; ANTHEM-CIGNA ALSO SAID IN DOUBT

Humana vs. Aetna July 19
The downside risk of a failed deal is greater for Humana than for Aetna, as reflected in this Google Finance chart showing the path of their stocks since opposition first surfaced; Humana is in blue, Aetna in red.

The Justice Department’s final decision on whether to sue to block Aetna’s $37 billion acquisition of Louisville-based Humana could come this week or next, Bloomberg News and other media outlets are now reporting; latest news developments at 4:50 p.m.

The DOJ’s move would represent strong government pushback against consolidation in the health-insurance industry, according to The Wall Street Journal.

Humana building
Humana headquarters.

The companies could settle a lawsuit before or after one is filed in order to save the deal, according to Bloomberg, perhaps by shedding even more assets than they’ve already offered.

Hartford-based Aetna and Humana will probably fight any lawsuit in court, while Anthem and Cigna are less likely to litigate against the government, Ana Gupte, an analyst at Leerink Partners, told Bloomberg.

The DOJ’s antitrust division is also preparing a suit to block a similar merger between Anthem and Cigna.

Shares of Humana and Aetna fell sharply on the news. At the close of trading, Humana tumbled 3.9%, or $6.26, to $153.38. Aetna fell 2.7%, or $3.21, to $115.15. Earlier in the day, Humana traded as low as $150 — lowest since it hit $148 in February 2015, according to Google Finance.

An Aetna spokesman told The Wall Street Journal it “doesn’t comment on rumors and speculation, but we are steadfast in our belief that this deal is good for consumers and the health-care system as a whole.” Humana spokesman Tom Noland did not immediately respond to a Courier-Journal request for comment.

Justice Department officials are concerned the deals, which would transform the health-insurance industry by turning its five biggest companies into three, would harm customers, according to several people familiar with the situation cited by Bloomberg. “While the companies may offer to sell assets to gain approval for the deals, that’s unlikely to sway antitrust officials, one of the people said,” according to the news service.

Hints of trouble ahead

The DOJ’s opposition isn’t entirely surprising. Less than two weeks ago, the antitrust division summoned Humana and Aetna executives to Washington in an 11th-hour negotiation over the deal. News of that meeting sent Humana’s stock careening lower as investors grew pessimistic about prospects for the tie-up announced a year ago this month.

The Humana-Aetna and Anthem-Cigna deals raised different antitrust concerns within the agency, however, and legal challenges are likely to focus on distinct issues, the Wall Street Journal says. Analysts believe that if the DOJ does challenge both deals, the insurers are likely to fight in court.

Wall Street has been signaling that the consequences of a failed deal would be greater for Humana than for Aetna.

After the Washington meetings surfaced, JP Morgan analyst Gary Taylor said the probability of a deal approval had declined well below 50/50 chance. If the deal were not to happen, Humana’s shares could fall to a range of as low as $115 to $125, he told CNBC.

Buffeted by dlection-year politics

Reflecting that concern, Humana’s stock has tumbled 15% since news of the Washington talks first surfaced vs. a much smaller 4% decline for Aetna.

Renata Hesse
Hesse

The two deals have already become political footballs during this year’s elections, with presumptive Democratic nominee Hillary Clinton expressing concerns now being voiced by the DOJ. The antitrust division is led by acting assistant attorney general Renata Hesse, under Attorney General Loretta Lynch.

Humana, started in Louisville in 1961, has more than 21.3 million members and does business in all 50 states. It has approximately 50,000 employees, including about 12,500 in Louisville. Last year’s revenues were $54 billion.

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