In preparation for a Humana takeover, Aetna has lined up commitments for $16.2 billion in financing for the proposed cash and stock deal. But the volatility in the insurance companies' shares suggest that investors wonder whether the deal will make it to the finish line.
Their concerns center on Humana's earnings potential after the managed-care organization cut its forecast for full-year 2015, as well as the potential for a lengthy antitrust review that could kill the deal, analysts said.
Aetna revealed in a regulatory filing this week that Citigroup Global Markets, UBS' Stamford, Conn., branch and UBS Securities have agreed to provide a 364-day bridge loan to help finance its Humana acquisition. The bridge loan would be used in the event that Aetna does not receive additional financing in the form of bonds and term loans.
The Hartford, Conn.-based insurer entered into the agreement July 2, the day before its public announcement of the $37 billion takeover proposal.
Humana shareholders will receive $125 in cash and 0.8375 Aetna shares for each Humana share they own. The equity value of those shares will be based on the average trading price of Aetna's shares in the week before the deal closes.
Aetna earlier this week told investors that it expects that deal to close in the second half of next year—and the long lead time did not go unnoticed by analysts and investors. The transaction requires approvals from both companies as well as federal antitrust regulators and state insurance departments.
The Federal Trade Commission is likely to create a high bar for approving the deal, especially considering the wave of consolidation in the insurance industry, lawyers said. Aetna is hardly the only insurer seeking to get bigger. Anthem and Cigna are reportedly back at the bargaining table this week after Cigna in June rebuffed a $53.8 billion offer.
And then there's UnitedHealth Group, which is rumored to be seeking a tie-up with either Cigna or Aetna. While a bidding war might be good news for Cigna shareholders, the uncertainty could be spooking Aetna shareholders.
Aetna's shares are trading about 10% lower than they were on the day before the deal was announced.
In addition to lingering concerns about the Humana deal, Aetna shareholders might be expressing “disappointment” that UnitedHealth Group has not yet, and may not, bid for the company, UBS analyst A.J. Rice wrote in a research note. Still, he conceded that UnitedHealth and Cigna likely have too much overlap in the Medicaid managed-care market to successfully complete a deal.