Aetna and Humana Inc. entered into a definitive agreement today for Aetna to acquire all outstanding shares of Humana for cash and shares valued at $230 per Humana share, or about $37 billion.

“The acquisition of Humana aligns two great companies and will significantly advance our strategy of more effectively serving members in a rapidly changing health care industry,” said Mark T. Berolini, Aetna chairman and CEO, in a joint news release. “This combination will allow us to continue to invest in excellent service for our members and strengthen our partnerships with providers to deliver high quality care at an affordable price.”

“Through the use of technology and integrated services to simplify the consumer experience, the combined entity will be even more effective in meeting the health needs of many more people” said Bruce D. Broussard, president and CEO of Humana, “…Especially people with chronic conditions, who will benefit from Humana’s home health, pharmacy management, and data analytics programs.”

The board of directors of both Humana and Aetna unanimously approved the deal, which is expected to close in the second half of 2016. The companies said the new entity “…will provide Aetna with an enhanced ability to work with providers and create value-based payment agreements that result in better care to consumers.”

Mark Bertolini will be retained as chairman and CEO. Aetna will become the second largest publicly-traded payer, with a projected combined $115 billion in annual revenues serving 33 million members. The deal includes 3 million TRICARE members, the health program for military families and retirees administered by the U.S. Department of Defense. After closing, Aetna will run its Medicare, Medicaid and TRICARE business out of Louisville, where Humana is based.

Our Take: On Sunday, we reported that a deal was imminent with either Aetna or Cigna. Aetna proved to be the right suitor, paying a 23 percent premium to Friday’s closing price of $193 per share.

Analysts said today that the deal is a vindication of last week’s Supreme Court decision in King v. Burwell. Further consolidation may be on the way; in recent weeks Cigna rebuffed Anthem’s very public offer of $54 billion. 

A strong motivation for the acquisition is that 3.2 million Humana Medicare Advantage members come with it, bringing Aetna’s total to 4.4 million members and making it a leading Medicare Advantage company. 

“Medicare Advantage is a coveted space,” Michael Bernstein told Bloomberg Business. “To develop a similar scale in Medicare would take a great deal of work and time, which would be bypassed by making that transaction happen.”

CVS Caremark is also celebrating the merger, which signed a 12-year deal to manage Aetna’s pharmacy benefit in 2010. Last year Humana was shopping its Human Pharmacy Solutions PBM unit, but at least publicly, no offer was made.

The combined company will rival UnitedHealthcare, which last year posted $130.5 billion in revenues, and covers more than 45 million lives; about 10 million of those are Medicare Advantage members.

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