Coventry Health Care, Inc. - Case Study

Transaction Overview 

In August 2012, Coventry Health Care Inc. (“Coventry”), one of the nation’s largest diversified managed health care companies at the time, announced that it had entered into definitive agreements to be acquired by Aetna Inc. (“Aetna”) for $7.3 billion (including the assumption of Coventry debt).  Coventry shareholders received a mix of cash (65% of total consideration) and Aetna shares (35% of total consideration) in the transaction. The effective value of the transaction consideration for Coventry shareholders at the time of announcement represented a premium of greater than 30% to the unaffected Coventry share price as of mid-August. The transaction was also projected to be accretive to Aetna’s 2013 earnings at the time of announcement and Aetna expected to realize synergies of $400 million annually by 2015. The transaction closed in May 2013.  

The combination with Coventry enabled Aetna to expand its core health insurance business, increase its presence in the fast-growing Government sector and enhance relationships with health providers in local geographies.  

Coventry was a diversified managed health care company that offered a full portfolio of risk and fee-based products, including Medicare Advantage and Medicare Part D programs, Medicaid managed care plans, group and individual health insurance, coverage for specialty services such as workers’ compensation, and network rental services. The acquisition was projected to add nearly 4 million medical members and 1.5 million Medicare Part D members to Aetna’s membership. On a pro forma basis, the transaction increased Aetna’s share of revenues from Government business to over 30% from 23%. 

Aetna is one of the nation’s leading diversified health care benefits companies, serving approximately 37 million people at the time of announcement. Aetna offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities, Medicaid health care management services and health information technology services. 

The transaction is one of the largest transactions ever announced in the managed care sector. 

Greenhill’s Role 

Greenhill acted as sole financial advisor to Coventry throughout the transaction process. Greenhill provided insight on valuation of Aetna’s offer in the context of Coventry’s other strategic options and standalone financial plan and offered critical guidance in negotiating and structuring the terms of the acquisition agreement with Aetna in such a way that Coventry shareholders were able to achieve both near term liquidity and value capture (through the cash portion of Aetna’s offer) and maintain exposure to the significant long-term value created by the synergies in the transaction (all while still receiving a premium to the unaffected share price at the time). Ultimately, Greenhill provided the Coventry Board of Directors with a fairness opinion on the consideration received by Coventry shareholders in the transaction. Additionally, Greenhill coordinated and facilitated an extensive due diligence process.