Aetna, Humana Terminate Merger Agreement, Aetna Stock Up 3%, Humana to Receive $1B

Aetna (AET) and Humana (HUM) told investors on Tuesday that the two companies will end their $34 billion merger agreement. The terms of the agreement allow Humana to receive a $1 billion breakup fee,

U.S. federal courts argue that the deal will cause the merged companies to have a competitive advantage with the Medicare Advantage program. Aetna will also call of the sale of Medicare Advantage assets following the ruling.

Molina Healthcare Inc. was in talks with Aetna to purchase their Medicare Advantage assets.

The deal was initially mentioned in July 2015. The transaction was blocked the following year by the U.S. Justice Department. Aetna and Humana did not choose to appeal the decision further and instead agreed to terminate the agreement ahead of the February 15 agreement date.

Humana will receive $630 million after taxes in the breakup fee.

Aetna will redeem their debt notes for cash. The company issued debt to acquire the healthcare company. Company shares rose 3% on the news. Humana’s stock remains relatively unchanged on Tuesday.

“We are disappointed to take this course of action after 19 months of planning, but both companies need to move forward with their respective strategies in order to continue to meet member expectations,” Aetna chairman and CEO Mark Bertolini said.

Bertolini reaffirms that the combined companies would provide a greater value for consumers. He states that the merger would allow for higher quality and affordable prices.

The ruling came at a time when Anthem (WLP) announced that they will appeal the court’s decision to block their merger with Cigna (CI). A federal judge also put the merger to an end, stating that the rule between the two companies would result in an anticompetitive nature.

Aetna’s Medicare Advantage business remains profitable with the sector, growing 9% in the fourth quarter of the year. The total members in the company’s Medicare Advantage platform hit 1.4 million in three final quarters of the year.

A Republican Congress is in favor of Medicare privatization, which strengthens the company’s position further.

Traders are betting on Aetna targeting smaller acquisitions to further grow the company.

The announcement to end the merger comes after 19 months of discussions. A merged company would have made the company the nation’s largest private Medicare plan seller. Aetna announced earlier in the year that the company will withdraw from 11 of 15 states that they offer insurance in under the Affordable Care Act.