Aetna's Coventry Deal Signals 'Obamacare' Consolidation

Updated to include analyst comments and added data throughout.

NEW YORK (TheStreet) -- Obamacare has another major merger, after health care giant Aetna(AET) buying Coventry Health Care(CVH) $42.08 per share, in a deal that values Coventry at $5.7 billion.

The deal, which comes at a near 20% premium to Coventry's Friday closing share price and was announced Monday, is the second major health care sector merger since President Obama's Affordable Health Care Act was narrowly upheld by the Supreme Court in late June.

For Aetna, a large provider of commercial and individual health care plans, the deal targets Coventry's Medicare and Medicaid customers, which are expected to grow under the expanded coverage of the Act. It also signals that healthcare giants are already planning for drastic change in the sector, even as the Act becomes a key campaign issue and presumptive Republican Presidential candidate Mitt Romney says he would attempt to strike it down.

For Aetna, a large regional healthcare care provider, Coventry will add nearly 4 million medical members and 1.5 million Medicare Part D members to Aetna's membership, substantially increasing its exposure to government sponsored health plans. "We think that the deal is a good one for Aetna who has holes to fill in both its Medicare and Medicaid books and is able to do so at multiples well below what it would have cost to buy pure play operators," wrote Bank of America Merrill Lynch analyst Kevin Fishbeck, in a note to clients.

After the deal, Aetna's share of revenues from government business will increase to over 30% from 23%. Excluding transaction and integration costs, the merger is expected to add slightly to Aetna's operating earnings per share in 2013, and will boost EPS by 45 cents in 2014 and another 90 cents in 2015. When including Coventry's $1.6 billion in debt, the merger values it at $7.3 billion.

"Integrating Coventry into Aetna will complement our strategy to expand our core insurance business, increase our presence in the fast-growing Government sector and expand our relationships with providers in local geographies," Mark T. Bertolini, Aetna's chairman, chief executive said in a statement released on Monday.