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Aetna downplays timing of $13 billion debt offering for Humana deal


Aetna Inc.'s new debt issuance reflects a good borrowing market and should not be interpreted as higher confidence regarding its Humana Inc. acquisition, a top executive said at the Goldman Sachs health care conference Wednesday.

Last week, Aetna issued $13 billion in debt. That money, along with cash on hand and a $3.2 billion term loan, will fund the health insurer's $37 billion takeover of Humana. Citigroup Inc. and UBS A.G. acted as the main underwriters. More than a dozen banks helped with the offering and were immediately owed a combined $82.5 million, adding to the deal's ancillary costs.

Aetna President Karen Lynch told investors Wednesday that the new debt was issued this month in case the Federal Reserve decided to raise interest rates and because it made sense within their calendar.

“This was our best opportunity to do the debt financing,” Ms. Lynch said. Moody's Investors Service Inc. consequently downgraded Aetna's debt rating.

Aetna executives, including CEO Mark Bertolini, have said repeatedly they expect the Humana deal to receive all necessary state and federal approvals and that they expect it will close sometime in the second half of this year.

Ms. Lynch repeated that mindset and said Aetna has been “very respectful with the Department of Justice in recognizing they have a job to do.” The U.S. Justice Department's antitrust division has the final say on the merger.

However, last month, Missouri state insurance officials said the Aetna-Humana marriage was anti-competitive and told the two companies they have 30 days to remedy the situation, likely hinting at divestitures. Aetna and Humana have large overlaps in Missouri's Medicare Advantage market. Experts anticipate the U.S. Justice Department will also require Aetna to sell off some health plan assets.

Ms. Lynch said if and when that time comes, it won't be difficult to find buyers. “When we are ready to have the conversations around divestitures, we believe there is a number of interested parties,” she said.

In the meantime, 200 people from Aetna and Humana have been working on “integration planning,” Ms. Lynch said. The insurers believe they can cut $1.25 billion in costs annually from the merger by 2018.

Anthem Inc. CEO Joseph Swedish also spoke at the Goldman Sachs conference Tuesday, reiterating he expects his company's pending acquisition of Cigna Corp. will be completed this year despite reservations from Cigna and behind-the-scenes disputes. If Aetna and Anthem receive approval for their deals, they, along with UnitedHealth Group Inc., would create a “big three” among health insurance companies, each collecting more than $115 billion in revenue annually.

Large, self-insured employers have expressed some concerns with the Anthem-Cigna deal, although Mr. Swedish said at the conference those feelings were not conveyed by the employer executives with whom he has spoken.

Bob Herman writes for Modern Healthcare, a sister publication of Business Insurance.

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