Aetna, Humana end merger agreement

Health insurance giants Aetna and Humana announced Tuesday that they have formally abandoned their efforts to merge after a federal judge upheld the Justice Department's decision to block the $37 billion deal last month.

As part of the merger agreement, Aetna will pay Humana a $1 billion breakup fee, which will amount to about $630 million after taxes.

'While we continue to believe that a combined company would create greater value for health care consumers through improved affordability and quality, the current environment makes it too challenging to continue pursuing the transaction,” Aetna CEO Mark Bertolini said in a statement. 'We are disappointed to take this course of action after 19 months of planning, but both companies need to move forward with their respective strategies in order to continue to meet member expectations.”

The case was one of two big business deals, first proposed in 2015, that could have reshaped the health insurance landscape in the United States by consolidating the five largest insurers into three companies. The other deal - a combination of Anthem and Cigna - also was blocked by the Justice Department on antitrust grounds, and a different judge upheld that decision over the last few weeks.

U.S. District Judge John Bates said the Aetna-Humana deal would have been anticompetitive and raised prices for consumers, specifically in the business of selling private Medicare plans in hundreds of counties and in the health insurance exchanges set up by the Affordable Care Act in three counties in Florida.

The formal conclusion of the deal did not come as a surprise; analysts had expected that Aetna and Humana would not appeal the decision.

Scott Fidel, an analyst at Credit Suisse, wrote in a research note that after a trip to Aetna last week, 'we came away from the meeting viewing the likelihood of an appeal of Judge Bates' adverse ruling as extremely low, as management conceded that an appeal would likely face a very high hurdle to success.” Ana Gupte, an analyst with Leerink Partners wrote the deal was viewed 'as completely dead at this point” in a note last week.

Analysts have speculated that Humana, which is strong in the Medicare Advantage business of selling private Medicare plans, could now be targeted in a future deal, by either Anthem or Cigna. But those companies have not yet announced a formal termination of their merger agreement and could still appeal.