Tracking the smart money pays off and that’s been proven yet again in the case of Humana Inc (NYSE:HUM). In our recent “5 Takeover Targets Hedge Funds Are Betting On” article in February of this year, we ranked Humana Inc (NYSE:HUM) as the number one takeover target based on hedge fund sentiment. Early this morning, Aetna Inc (NYSE:AET) announced that it will acquire Humana for $37 billion in a cash and stock transaction. America’s third-largest health insurer will pay a 23% premium on Humana’s closing price on Thursday at $230 per share. If the deal goes through, it will make the combined company slightly smaller than the largest American health insurer, UnitedHealth Group Inc (NYSE:UNH). Aetna Inc (NYSE:AET)’s current CEO, Mark Bertolini, will head the combined company as the CEO and chairman of the insurer.
While talking about antitrust regulators, Bertolini said that they are “never totally predictable, but we believe it’s very manageable.” What is even better for Aetna Inc is that the combined company will have the largest number of Medicare Advantage Members enrolled, with them folding the 3.19 million members Humana Inc (NYSE:HUM) holds into the 1.25 million members of Aetna itself. They will surpass the biggest Medicare Advantage insurer UnitedHealth Group in the process, which has 3.45 million members as of now. Aetna was rumored to be pursuing a deal to purchase Humana for several weeks now.
Stephen Mandel of Lone Pine Capital identified Humana as a potential acquisition target in 2014 and he mentioned the same in his 2014 fourth quarter investor letter. The hedge funds tracked at Insider Monkey upped their stake in the health insurer during the fourth quarter and the same trend was followed in the first quarter of 2015. 46 hedge fund managers held positions in Humana Inc (NYSE:HUM) with net investments of $2.67 billion towards the end of the first quarter, which was higher than the aggregate investments of $2.28 billion in the previous quarter, although the number of overall owners dipped by three.
Interestingly, Mandel ended up selling out of his nearly $275 million position in Humana during the first quarter, missing out on what will be a further 25% appreciation in its shares from the end of the first quarter. Mandel is still holding positions in all four of his other top takeover targets as of March 31 however, which are CDK Global Inc (NASDAQ:CDK), Autodesk, Inc. (NASDAQ:ADSK), W.R. Grace & Co. (NYSE:GRA), and Adobe Systems Incorporated (NASDAQ:ADBE).
Larry Robbins’ Glenview Capital had both Aetna Inc and Humana in its portfolio towards the end of the first quarter. His stake in Aetna included 3.53 million shares valued at $375.77 million, whereas his stake in Humana was comparatively bigger, including 5.02 million shares having a market value of $893.04 million. Cliff Assness’ AQR Capital Management along with Phil Gross & Robert Atchinson’s Adage Capital Management are two other hedge funds maintaining positions in both of the insurers. Cliss Asness owned 3.12 million shares of Aetna Inc (NYSE:AET) worth $332.75 million and 1.93 million shares of Humana with aggregate value of $344.46 million.
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