Thursday, shares of Humana Health (NYSE: HUM) fell over 11% during the trading day. Why? Reuters reported that the U.S. Department of Justice has some concerns over the potential of being acquired by Aetna (NYSE: AET), and anytime the government is concerned it drastically lowers the odds of completing a deal
Some of the Governments concerns may be justified though. See, the purchase of Aetna would combine two of the largest providers of Medicare Advantage plans. These are the plans offered to the elderly in the US. The issue is that the deal might present a competition issue that the antitrust regulators have already have voiced concern over as well.
The news of the Justice Department's concerns conveniently came out just as they are due to meet with the top brass (and their lawyers) from both Aetna and Humana. Even more interesting is that the source of the news could not speak publicly or reveal their identity. This person also said that they cannot confirm the nature of the "concerns". Imagine that! One person that no one knows can cause a stock to drop over 10%.
To be fair, it is also publicly known that the Justice Department is also reviewing Anthem Inc's (NASDAQ: ATHM) proposed purchase of Cigna Corp (NYSE: CI). As for this deal, Goldman Sachs (NYSE: GS) says that they are betting the deal will fail because of its "impact on competition in the employer insurance market". Together, the two deals will decrease the number of national health insurers to three from five.
Back to the Aetna deal, the company has been aggressive in preparing for the antitrust concerns, making this deal look as good as possible to the regulators. Last week Aetna reported that it had begun a process to divest about $1 billion of Medicare Advantage assets to address the potential antitrust concerns.
The bottom line is that the Government regulators are just making sure that the consumer isn't put at a disadvantage because of a deal. As for this deal in particular it seems that the antitrust regulators are mainly focused on whether the deal would limit consumer choices specifically for Medicare Advantage health plans for the elderly.