Is Aetna buying Coventry?

Could be.
For a couple days there have been rumors swirling around Hartford (Aetna’s hometown) that the big insurer may be looking at Coventry’s books ahead of a possible acquisition.
With Coventry’s stock still relatively low, and at a P/E under 10, the company looks like a good deal. CVH’s stock bounced up a couple bucks early Wednesday, and has stayed in a fairly narrow range since then. There has also been significant volume in options markets, volume that appears to indicate some investors’ sense that CVH is in play.
Aetna and Coventry do have an existing, if really tiny, relationship – Coventry uses Aetna’s work comp network in many states. I don’t know the dollar value of that deal, but doubt it is much more than ten million annually, if that. That’s not terribly significant at ‘mother Aetna’ where annual revenues are over $30 billion.
If Coventry is on the block, I’m not so sure Aetna’s a serious option. CVH stumbled recently after missing their earnings forecast earlier this year, a miss that was painful both to investors and management who had cultivated a (to that point well-deserved) reputation for consistently hitting their numbers. Coventry is particularly strong in the smaller employer market, and their ability and expertise in that segment could be helpful to Aetna if it seeks to grow its small employer market share. Coventry does have a growing individual block, but Aetna has already expanded its individual business significantly and is now in 29 states.
Coventry is not a national account company, a market that has been Aetna’s sweet spot for years. Its new markets, which tend to be in secondary metro areas such as Oklahoma City, still represent relatively few lives.
Lastly, Coventry’s provider contracts are certainly not as good as Aetna’s.
Which leaves us with the question – why would Aetna buy Coventry? The only real reason I can see is a strategic one – to gain more strength in the small employer end of the market. There’s always the American League East (see Red Sox/Yankees bidding wars for free agents) strategy – if Aetna buys it Anthem can’t – but Aetna is not a company that would spend corporate assets just to keep a property away from another competitor.
If you look at Aetna’s acquisitions in the past, you’ll notice there have not been many. And the deals that have been done – PPOM and Schaller Anderson, have been highly selective and oriented towards acquiring new skills, new market expertise, and new/better technology – not health plan acquisitions.
Is an Aetna-Coventry deal possible? Sure. But highly unlikely.