By Dana Mattioli And Liz Hoffman
As Aetna Inc. and Humana Inc. sealed their $34.1 billion merger
this week, there were a few other elephants in the room.
Namely, the three other major health insurers lurking around the
deal talks, while having some of their own-- UnitedHealth Group
Inc., Anthem Inc. and Cigna Corp.
Humana, for example, was being pursued by both Aetna and Cigna,
say people familiar with the talks. Meanwhile, Cigna was rebuffing
advances from Anthem, which made public its $47.5 billion bid for
Cigna last month after private approaches failed to yield a
deal.
The dynamic raised questions on the Humana side about Cigna's
commitment to a purchase: Did it really want Humana, or did it want
negotiating capital with Anthem? Humana worried Cigna was using it
in an effort to play hard-to-get with Anthem, said one person
familiar with the Louisville, Ky., insurer's thinking.
Cigna, which has been engaged in rekindled talks with Anthem,
also expressed interest in Humana as late as Thursday evening, said
one person. The deal with Hartford, Conn.-based Aetna was announced
shortly after 2 a.m. EDT Friday.
Humana urged Cigna to make a cash-heavy offer, which Cigna
resisted, people familiar with the matter said. Humana worried that
Cigna shareholders--whose approval would be needed for any takeover
bid funded heavily by new stock--might not approve a Humana buyout
knowing the Anthem offer was there for the taking.
A cash bid wouldn't require Cigna shareholders' approval, so its
board could move ahead despite the Anthem offer on the table.
Shareholders often prefer to be sellers, getting a bird in hand,
rather than buyers, bearing the risks of an acquisition.
Aetna's offer for Humana involves a big issuance of new stock,
meaning Aetna's own shareholders must approve it. But that
structure was more acceptable to Humana, one person said, because
even though The Wall Street Journal has reported that UnitedHealth
has approached Aetna about a takeover, no public offer is on the
table for shareholders to consider.
Not that it was all smooth sailing between Aetna and Humana.
The two companies had been near an agreement on Tuesday,
according to people familiar with their talks, but negotiations
around the breakup fee, payable in case the announced deal fell
apart, raised tensions, some of the people said.
The two sides eventually agreed on a breakup fee of 3.75% of the
deal's value, currently about $1.4 billion, payable to either
company if the agreement is scuttled by a topping bid for the
other, people familiar with the matter said.
Such breakup fees are commonly promised to companies in Aetna's
shoes, the buyers, to compensate for the sting of seeing a rival
bidder steal their prize. But it is unusual to see it go both ways,
and suggests Humana was protecting itself against the possibility
UnitedHealth makes a play for Aetna.
The structure of the Aetna-Humana deal leaves time for
UnitedHealth to interlope, because the deal involves Securities and
Exchange Commission review and shareholder approval. Those efforts
can take months.
Write to Dana Mattioli at dana.mattioli@wsj.com and Liz Hoffman
at liz.hoffman@wsj.com
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