Then there’s the antitrust risk. While Centene and Health Net shouldn’t have a difficult time with U.S. regulators, Aetna and Humana will need to make divestitures. The companies will probably have to shed about 575,000 of their 4.4 million Medicare Advantage members in markets where the combined firm would be too dominant, said Brian Wright of Sterne Agee CRT.
Another Deal
A third potential purchase is looming: Anthem Inc. is still pursuing Cigna Corp. after being rebuffed last month. Regulators may balk at approving three mergers, particularly because they involve six of the seven largest publicly traded U.S. health insurers. That puts all of the deals at risk.
Even so, the drop in Aetna’s shares may be overblown, said Ana Gupte, an analyst at Leerink Partners. While shareholders who had been hoping for a takeover by UnitedHealth Group Inc. may be disappointed, Aetna’s estimates for cost-savings and other synergies in the Humana deal are conservative, she said.
The conventional wisdom used to be that acquirers’ stocks sell off after a deal is announced. That still happens, especially when purchases are expensive. AbbVie Inc. dropped 5.7 percent after agreeing in March to pay a well-above-average valuation for Pharmacyclics Inc.
Going Up
Still, many acquirers have been rising on deal news as companies take advantage of low interest rates or put stockpiles of cash to work.
The trend has been particularly apparent among drugmakers. Pfizer Inc. jumped 2.9 percent on the day it announced a $17 billion takeover of Hospira Inc. -- its priciest large purchase this decade. And Actavis Plc jumped 1.7 percent the day it said it would spend $66 billion to buy Allergan Inc.
Actavis, which took the name Allergan, is still seen as a potential target. That’s not the case for health insurers.
“In the health plan space, you’re dealing with a much more finite space of potential further deals,” Wright of Sterne Agee CRT said.