Aetna 2013 Annual Report Download - page 8

Annual Report- Page 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
OVERVIEW
We are one of the nation’s leading diversified health care benefits companies, serving an estimated 44 million
people with information and resources to help them in consultation with their health care professionals make better
informed decisions about their health care. We offer a broad range of traditional, voluntary and consumer-directed
health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life
and disability plans, medical management capabilities, Medicaid health care management services, Medicare
Advantage and Medicare supplement plans, workers' compensation administrative services and health information
technology products and services, such as Accountable Care Solutions (“ACS”). On May 7, 2013 (the “Effective
Date”), we acquired Coventry Health Care, Inc. (“Coventry”). Our customers include employer groups, individuals,
college students, part-time and hourly workers, health plans, health care providers (“providers”), governmental
units, government-sponsored plans, labor groups and expatriates. Our operations are conducted in three business
segments: Health Care, Group Insurance and Large Case Pensions.
The following MD&A provides a review of our financial condition at December 31, 2013 and December 31, 2012
and operating results for the years ended December 31, 2013, 2012 and 2011. Coventry's results after the Effective
Date are reflected in our results for the year ended December 31, 2013, which significantly affects the
comparability of those results to the years ended December 31, 2012 and 2011. This Overview should be read in
conjunction with the entire MD&A, which contains detailed information that is important to understanding our
operating results and financial condition, the consolidated financial statements and other data presented in this
Annual Report. This Overview is qualified in its entirety by the full MD&A.
Acquisition of Coventry Health Care, Inc.
On August 19, 2012, we entered into a definitive agreement (as amended, the “Merger Agreement”) to acquire
Coventry. On the Effective Date, we acquired Coventry in a transaction valued at approximately $8.7 billion,
including the $1.8 billion fair value of Coventry's outstanding long-term debt. We preliminarily recorded goodwill
related to this acquisition of approximately $4.0 billion, of which $267 million will be tax deductible. Coventry's
products included a full portfolio of risk and fee-based products, including Medicare Advantage and Medicare Part
D programs, Medicaid managed care plans, group and individual health insurance, coverage for specialty services
such as workers' compensation administrative services, and network rental services.
Under the terms of the Merger Agreement, Coventry stockholders received $27.30 in cash and 0.3885 of an Aetna
common share for each share of Coventry common stock (including restricted shares but excluding shares held by
Coventry as treasury stock) outstanding at the effective time of the Merger. As a result, on the Effective Date, we
issued approximately 52.2 million Aetna common shares with a fair value of approximately $3.1 billion and paid
approximately $3.8 billion in cash in exchange for all of the outstanding shares of Coventry common stock and
outstanding awards. Substantially all of Coventry's outstanding equity awards vested and were paid out in cash and
canceled in connection with the Merger. We funded the cash portion of the purchase price with a combination of
$2.0 billion of long-term debt issued in November 2012, approximately $700 million of commercial paper issued in
2013 and approximately $1.1 billion of available cash on hand.
The Coventry acquisition added medical membership, which enhanced our diversified portfolio, increased our
presence in government programs, which is an important element of our growth strategy, and improved our
positioning and reach in local geographies.
In connection with the acquisition of Coventry, on March 31, 2013, we completed the sale of our Missouri
Medicaid business, Missouri Care, Incorporated (“Missouri Care”), to WellCare Health Plans, Inc. The sale price
was not material and did not have a material impact on our financial position or operating results.