Today's Market: Healthcare Stocks In Focus As Acquisition Rumors Circulate

by: Matthew Smith


Chinese markets were hit hard today and the only good news was that some buying into the close brought the market back near key support levels.

AET is close to buying HUM, which could start a wave of consolidation among the health insurers.

ZTS was approached by VRX, although there are no reports on what ZTS's response was.

The Europeans are once again dragging these negotiations out to the last minute, with Greece unwilling to budge on its demands and the country's creditors unwilling to once again extend lifelines to Greece while getting nothing to show for it. We were actually surprised to see that immigration talk was getting as many headlines and coverage time this morning in Europe as a meeting was underway. Fears of ISIS using any relaxation in current laws to send terrorists to mainland Europe was an argument being made by one side, and while this was labeled as fear mongering, we did catch a headline from France which said that a factory worker had been beheaded.

Chart of the Day:

Markets in China have soured amid fresh IPO issuers hitting the market and sucking up all of the excess liquidity. It is painful for investors already invested in the general market, but it is better for markets to head lower in the interim on transfers in capital from investors to the government as the government sells off stakes in established companies than head lower in the future because a lack of quality IPOs led to speculation on worthless paper that blows up. That is what happened during the tech boom, and it appears China is trying to manage the situation...although today's 7.38% move lower is not indicative of that.

Source: CNBC

We have economic news today, and it is as follows:

  • Michigan Sentiment - Final (10:00 a.m. EST): Est: 94.6

The Asian markets are lower today:

  • All Ordinaries - down 1.54%
  • Shanghai Composite - down 7.38%
  • Nikkei 225 - down 0.31%
  • NZSE 50 - up 0.39%
  • Seoul Composite - up 0.25%

In Europe, markets are lower today:

  • CAC 40 - up 0.16%
  • DAX - down 0.18%
  • FTSE 100 - down 0.61%
  • OSE - down 0.08%

First Domino To Fall In Health Insurer M&A

Bloomberg is reporting that Aetna (NYSE:AET) is very close to finalizing a deal to purchase fellow health insurer Humana (NYSE:HUM) after talks intensified over the past week. While Aetna has made a formal offer for Humana, no formal agreement has been entered into by the two sides but sources are saying that an announcement could come as early as this weekend now that Humana's board has decided that Aetna's offer is superior to what Cigna (NYSE:CI) was offering. Assuming that the reports are accurate and this deal does move forward as is rumored, then the rest of the health insurers are going to have to scramble in order to avoid being left out of this round of consolidation.

The deal which would seem a no-brainer to follow this one would be a tie-up between Anthem (NASDAQ:ANTH) and Cigna, but with the way that the two management teams took their fight public this week, we would not be surprised to see another name, such as UnitedHealth Group (NYSE:UNH), enter the fray and potentially find a partner. While Anthem and Cigna probably should be able to find common ground and move forward with a friendly merger, we could see the need for Anthem to go hostile in order to get a deal completed; especially if they already believe that their latest offer is better than any offers which will come in from competitors.

While there are many questions surrounding this round of consolidation in the health insurance industry, one thing is for certain; companies left at the altar on one transaction could find themselves at the altar for another transaction.

Speaking of Healthcare And M&A...

There are reports out that Valeant Pharmaceuticals (VRX) has finally made an offer for Zoetis (NYSE:ZTS), a company focused on animal health, after months of speculation that the company was in play. The speculation began after Bill Ackman established an 8.4% stake in Zoetis and gained two board seats on the company's board following a failed bid by Valeant for another pharmaceutical company. The thinking was that Mr. Ackman would use his gains from the previous failed bid to line up another candidate for Valeant to make a move on.

Zoetis has been cutting back on costs at the urging of Mr. Ackman, and in the process made the company even more attractive as a takeover candidate. Shares of Zoetis traded at fresh all-time highs yesterday on deal rumors, and so long as Valeant comes through and deliver a fair offer to the management team at Zoetis, we believe that a deal will get done. Zoetis will have to accept with all of the investors who have been betting on a deal or they could face a shareholder revolt which sees the company sold anyways.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.