Aetna 2012 Annual Report Download - page 57

Annual Report- Page 51
The indebtedness of Aetna following completion of the proposed Coventry acquisition will be substantially
greater than Aetna's indebtedness on a stand-alone basis and greater than the combined indebtedness of
Aetna and Coventry existing prior to the transaction. This increased level of indebtedness could adversely
affect Aetna, including by decreasing Aetna's business flexibility, and will increase its borrowing costs.
Downgrades in Aetna's ratings could adversely affect Aetna's business, cash flows, financial condition and
operating results.
Upon completion of the proposed acquisition, Aetna expects to have incurred acquisition-related debt financing of
approximately $2.5 billion, which includes $2.0 billion of long-term debt that Aetna issued in November 2012.
Aetna's substantially increased indebtedness and higher debt-to-equity ratio following completion of the proposed
acquisition in comparison to that of Aetna on a recent historical basis will have the effect, among other things, of
reducing Aetna's flexibility to respond to changing business and economic conditions and will increase Aetna's
borrowing costs. In addition, the amount of cash required to service Aetna's increased indebtedness levels and thus
the demands on Aetna's cash resources will be greater than the amount of cash flows required to service the
indebtedness of Aetna or Coventry individually prior to the incurrence of the acquisition-related indebtedness. The
increased levels of indebtedness will also reduce funds available for Aetna's investments in product development as
well as capital expenditures, share and debt repurchases and other activities and may create competitive
disadvantages for Aetna relative to other companies with lower debt levels.
In addition, our credit ratings impact the cost and availability of future borrowings, and accordingly our cost of
capital. Aetna's ratings reflect each rating organization's opinion of Aetna's financial strength, operating
performance and ability to meet Aetna's debt obligations or obligations to Aetna's insureds. Each of the ratings
organizations reviews our ratings periodically, and there can be no assurance that our current ratings will be
maintained in the future. Following the announcement of the proposed Coventry acquisition, each of A.M. Best,
Fitch and Moody's placed certain of our debt, financial strength and other credit ratings under review for possible
downgrade. S&P has affirmed certain of our ratings and revised its outlook to stable from positive. Consistent with
our expectations, Moody's has said it anticipates downgrading our long-term debt and financial strength ratings
following the closing of the proposed Coventry acquisition. Downgrades in our ratings could adversely affect our
business, cash flows, financial condition and operating results.
Aetna will incur significant transaction and integration-related costs in connection with the proposed
Coventry acquisition.
Aetna expects to incur a number of non-recurring costs associated with completing the proposed Coventry
acquisition and combining the businesses and operations of the two companies. The substantial majority of non-
recurring expenses resulting from the proposed acquisition will be comprised of integration costs related to
formulating and implementing integration plans, including facilities and systems consolidation costs and
employment-related costs, and transaction costs related to the proposed acquisition. Aetna continues to assess the
magnitude of these costs, and additional unanticipated costs may be incurred in the proposed acquisition and the
integration of the two companies' businesses and operations. Although Aetna expects that the elimination of
duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses and
operations, should allow Aetna to offset integration-related costs over time, this net benefit may not be achieved in
the near term, or at all.
Failure to complete the proposed Coventry acquisition could negatively impact Aetna's future business and
financial results.
If the proposed Coventry acquisition is not completed for any reason, the ongoing business of Aetna may be
adversely affected and, without realizing any of the benefits of having completed the proposed acquisition, Aetna
would be subject to a number of risks, including the following:
• Aetna may experience negative reactions from the financial markets, including negative impacts on Aetna's
stock and bond prices, and from its customers, providers, vendors, regulators and employees;
• Aetna may be required to pay Coventry a termination fee of $450.0 million if the Merger Agreement is
terminated under certain circumstances;
• Aetna would be required to pay certain costs relating to the proposed acquisition; and
• Matters relating to the proposed acquisition (including integration planning and the proposed sale of
Missouri Care) have required and will require substantial commitments of time and resources by Aetna