In $7.3B Coventry deal, Maryland would lose one of its remaining giants -- Gazette.Net


Maryland stands to lose another Fortune 500 company, as Bethesda medical insurance company Coventry Health Care agreed this week to be acquired by health insurance giant Aetna in a $5.7 billion cash-and-stock transaction.

The deal is worth $7.3 billion, including debt.

If the purchase closes as planned by mid-2013, Maryland only would have three Fortune 500 companies. That would be the same number as Washington, D.C., and Maryland would fall further behind Virginia, which had 24 businesses on this year’s list.

Maryland had six companies on the 2012 Fortune 500 list, which was released in May, based on public companies’ 2011 revenues. But Constellation Energy Group, formerly of Baltimore, completed its sale to Chicago power giant Exelon in March. Pharmacy benefits manager Catalyst Health Solutions, formerly of Rockville, completed its sale to another Illinois company, SXC Health Solutions of Lisle, in July.

All of Maryland’s remaining top businesses are based in Bethesda: military and aerospace giant Lockheed Martin, hotelier Marriott International and lodging real estate investment trust Host Hotels & Resorts, a Marriott spinoff.

It is disappointing to lose another Fortune 500 company, if the deal goes through as planned, said Kathleen Snyder, president and CEO of the Maryland Chamber of Commerce.

“Major business decisions, high-paying jobs and corporate philanthropy are directly tied to a company’s headquarters,” Snyder said. “Maryland is very much a small-business state, and we need to work harder to ensure our public policy focuses on strengthening our private-sector base and making Maryland more competitive.”

Adding Coventry’s Medicaid and other government members to Aetna is an important facet of the Hartford, Conn., company’s strategy, Mark T. Bertolini, Aetna’s chairman, CEO and president, said in a conference call on Monday. The deal is expected to boost Aetna’s share of revenues from government sources to more than 30 percent from 23 percent.

“Diversification is incredibly important as we head into health care reform,” Bertolini said. Coventry is “ahead of most other businesses in getting prepared for health care reform, and we want to take advantage of that opportunity.”

In many ways, top executives of the two companies think alike, said Allen F. Wise, chairman and CEO of Coventry.

“We both have a strong commitment to partnering with hospitals and doctors to change the way health care is delivered and to bring more value to the system,” Wise said.

Layoffs ahead?

Executives did not directly address the possibility of staff cutbacks during the conference call. But Aetna CFO Joseph M. Zubretsky said the purchase “will create a significant synergy opportunity to further Aetna’s efforts to increase our operating efficiency.”

He expected those “synergies” to be $400 million in 2015. “These cost efficiencies will support our efforts to drive costs out of the system and offer products at a lower price point in the marketplace,” Zubretsky said.

Coventry spokeswoman Kristine Grow said Tuesday that there will not be any immediate changes.

“We’re at the very beginning” of the purchase process, she said. “The transaction is not expected to be completed until mid-2013. ... It is business as usual.”

Coventry had about 14,400 employees as of Jan. 31, some 400 more than a year earlier, according to its annual reports. About 440 workers are in Maryland, Grow said.

Aetna had about 33,300 employees as of Dec. 31, down some 700 from a year earlier, according to annual reports.

Aetna is paying $42.08 per share for Coventry, about a 20 percent premium on Coventry’s shares on Friday. Coventry’s stock price leaped about 20 percent on Monday to $42.04, while Aetna’s shares rose 5.6 percent to $40.18. Both stocks had dropped only slightly by Thursday afternoon.

Government-funded health care coverage is expected to get a big boost from federal health care reform, adding millions of Americans to Medicaid and other government coverage starting in 2014.

Coventry’s 5 million-plus customers will join Aetna’s 36.7 million customers, if the deal is approved by Coventry shareholders and regulators. Besides Medicaid plans, Coventry offers Medicare Advantage, Medicare Part D and private group and individual health insurance.

Aetna is the nation’s third-largest health insurer based on enrollment, behind UnitedHealth Group and WellPoint.

Aetna was 89th on this year’s Fortune 500 list with $33.8 billion in revenues last year. Coventry ranked 219th — and fourth in Maryland — with revenues of $12.2 billion.

Coventry’s second-quarter profit fell to $91.7 million from $224.5 million in the prior-year quarter; revenues rose to $3.52 billion from $3.03 billion.