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The merger mania is not showing any sign of slowdown in the health care space. Now, health care insurers, which are facing the double whammy of margin erosion and increased regulatory oversight due to Health Care Reform Act or Obamacare, have stepped up consolidation activities. In fact, the five big managed health care insurers are seeking a series of potential mega-mergers that could change the landscape of the whole managed care industry. M&A Talks in Focus Health insurers – UnitedHealth Group (NYSE: UNH ), Anthem (NYSE: ANTM ), Aetna (NYSE: AET ), Humana (NYSE: HUM ) and Cigna Corp (NYSE: CI ) – have been in some kind of merger talks with each other over the last couple of weeks. The coldest match-up war is between Aetna-Humana and Aetna-UnitedHealth. This is especially true as Aetna made a takeover proposal to Humana last weekend, as per the Wall Street Journal, while on the other hand, UnitedHealth made a preliminary takeover approach to Aetna last week. Meanwhile, Anthem renewed a sweetened offer to acquire Cigna for $54 billion, including debt. The deal includes $184 per share in cash and stock. About 31% would be paid in Anthem shares, which represents 29% premium to Cigna’s average closing price in the past 20 trading sessions, and the rest in cash. The combination could be the industry’s biggest takeover in history and could make Anthem bigger than the industry leader UnitedHealth – and thus the largest U.S. insurer in terms of membership. However, Cigna rejected the proposal citing the bid as “inadequate” and not in the best interests of its shareholders. Both companies have been in talks for months and the latest bid is the second in the last 10 days. The mergers – if these come through – could dampen competition in the managed care industry leading to heavy concentration in the hands of a few. This is because a merger could shrink the top insurers names from five to just three with revenues of over $100 billion each. However, it could enhance operational efficiencies with more revenue opportunities from Obamacare and privatization of Medicare and Medicaid at an adequate margin and return on capital. Given the series of M&A talks in the health insurer corner of the broad health care space, the iShares U.S. Healthcare Providers ETF (NYSEARCA: IHF ) could be worth a look for investors seeking to ride out the surge on the merger wave. IHF in Focus This ETF follows the Dow Jones U.S. Select Healthcare Providers Index with exposure to companies that provide health insurance, diagnostics and specialized treatment. In total, the fund holds 51 securities in its basket. UnitedHealth takes the top spot in the basket with 11.98% share while the other in-focus four firms – AET, ANTM, CI and HUM – are also among the top 10 holdings making up for a combined 24.2% of assets. The fund has amassed $958.6 million in its asset base while volume is moderate at about 81,000 shares per day on average. It charges 43 bps in annual fees from investors and added 4.9% over the past couple of weeks. The product has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook. Originally published on Zacks.com Scalper1 News
Scalper1 News