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Why Coventry Health Shares Soared

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of health insurer Coventry Health Care (NYSE: CVH  ) surged 18% today after larger rival Aetna (NYSE: AET  ) agreed to acquire it for $5.7 billion.

So what: The cash-and-stock deal values Coventry at $42.08 per share -- $27.30 in cash and a portion of Aetna's stock -- and represents a 20% premium to its Friday closing price of $34.94. Aetna is making the move to increase its presence in the high-growth government-sponsored Medicare and Medicaid space, and judging by its own stock jump today, Mr. Market seems pleased with the price being paid to do it.

Now what: In a conference call with analysts, Aetna management said they expect the deal to double Aetna's Medicaid membership and estimated the combined company's 2012 revenue at $50 billion. "Coventry has distinct capabilities and a local market focus that will accelerate our efforts to bring simpler, more affordable products to consumer insurance exchanges in 2014 and beyond," said Aetna Chairman and CEO Mark Bertolini. "Once the transaction is completed, our larger capital base also will enhance our ability to continue to invest in innovation, technologies and capabilities to lead the transformation of the U.S. health care industry." So while Coventry shares are likely all popped out, Aetna's seemingly enhanced position might be worth looking into.

Interested in more info on Coventry? Add it to your watchlist.

Interested in more info on Aetna? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Coventry. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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Related Tickers

10/26/2016 9:31 AM
AET $111.64 Down +0.00 +0.00%
Aetna CAPS Rating: ***
CVH.DL2 $0.00 Down +0.00 +0.00%
Coventry Health Ca… CAPS Rating: *****