June 16, 2015 | 10:05 AM by Fahad Khalid | fkhalid@jaguaranalytics.com

Managed Healthcare M&A Speculation

Analyst Takeaways from media speculation about M&A prospects in managed healthcare space:

Leerink analyst Ana Gupte
Believes most likely combinations are AET with CI/HUM or ANTM with CI/HUM; believes CI is of strategic value to ANTM – suggests the Blues by-laws requirement is a manageable hurdle and models high single digit EPS accretion; sees UNH as having less need to consolidate in light of its scale, diversification, and Optum growth engine; continues to expect HUM to be acquired by either AET or ANTM, but believes likely take-out price is lower at $200-225 versus Street expectations of $225-250; believes AET/HUM is a superior combination in light of potential medical cost synergies and fewer regulatory hurdles.

Deutsche Bank analyst Scott Fidel
Believes CI shares offer better value relative to HUM, though from a strategic perspective, an acquisition of CI would not conform to ANTM’s goals of diversifying its mix more into government products; sees a lower near-term earnings risk profile associated with a CI acquisition; estimates most accretive deals would be AET for CI, ANTM for CI, and ANTM for HUM; believes UNH for AET would see the highest regulatory hurdle; while combination of high P/E multiples and low cost of money makes M&A attractive, believes elevated take-out multiples could dampen near-term financial returns for the sector.

UBS analyst AJ Rice
Notes CI trades at a relatively attractive valuation in comparison to HUM, offering ANTM more leeway for accretion; notes CI has PBM and Medicare capabilities that would be helpful for ANTM, albeit at a smaller scale for HUM; should CI end up in play, believes UNH would be a serious bidder; expects CI deal would be 9% accretive for ANTM at $175/share; believes AET is most likely to acquire HUM and has been most vocal proponent of MCO consolidation.

Barclays analyst Joshua Raskin
Believes there is a clear movement of consolidation underway; if a transaction is announced, expects a quick reaction from companies not included in first deal; struggles to see rationale for reported ANTM/CI discussions; sees potential of AET/CI as much more logical and likely more financially compelling; views most logical transaction is potential combination of UNH/AET as companies would have the most synergies and would allow for scale advantages not seen by competitors; believes reported discussions are unhelpful for HUM, which has seen significant appreciation in light of speculation.

Mizuho analyst Sheryl Skolnick
Sees it as highly unlikely that a UNH deal for CI, AET, or any other major company is imminent; notes UNH ‘has to’ do nothing as it has scale at UHC, Optum’s growth growth, and plenty of future opportunities; sees UNH as being in the enviable position of ‘being able to’ do pretty much whatever it wants; believes that while CI or AET might bring scale to UNH’s benefits business, it has plenty scale and growth opportunities.


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