Under the terms of the deal, Aetna will pay $42.08 a share for Coventry stock, a 20% premium over the company’s Friday closing price, the Associated Press noted.
Not surprisingly, Coventry shares jumped more than 18% in early Monday trading to above $41 a share, while Aetna shares rose more than 4%.
The acquisition must still be approved by both Coventry shareholders and federal regulators. If those approvals are received, Aetna expects to finalize the acquisition by mid-2013.
Coventry generated annual revenue of $12.2 billion last year and produced a profit of $543.1 million. The company provides insurance coverage through a number of government assistance programs including Medicare and Medicaid.
Aetna officials said the purchase of Coventry would bolster both its core insurance business as well as the expansion of its Medicare prescription drug and Medicare Advantage programs. Aetna expects to increase the amount of revenue it receives from government assistance programs from 23% of total revenue to 30% through the purchase of Coventry.
The insurance giant will also assume Coventry’s outstanding debt, raising the full value of the deal to $7.3 billion.
Health insurers are scrambling to adapt to a rapidly changing insurance landscape as the government begins implementing the Affordable Care Act, which increases Medicaid coverage.