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Court decision blocking Aetna, Humana deal has muted impact on big health stocks

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Court decision blocking Aetna, Humana deal has muted impact on big health stocks

A federal judge's decision blocking the proposed $34 billion merger between Aetna Inc. and Humana Inc. did not have a dramatic impact on the stocks of major managed care companies.

Citing the likelihood for reduced competition in markets offering Medicare Advantage and individual plans on public exchanges, a federal judge rejected Aetna's acquisition of Humana on Jan. 23. U.S. District Judge John Bates ruled that the merger would likely "substantially lessen" competition for individual Medicare Advantage plans in 364 counties across 21 states. Aetna's stock fell a little more than 2% immediately following the ruling. The stock declined 3.99% to $117.64 for the week of Jan. 26. Humana edged down 0.20% to $200.13.

Insurance stocks largely tracked the broader market for the week. The SNL Insurance Index rose 1.55% to 871.32, and the S&P 500 climbed 1.12% to 2,296.68.

Despite the wide-ranging ramifications of the ruling, volume among the major managed care companies remained relatively light on the week. While Mike Trilli, senior analyst at Aite Group, indicated that the lack of movement reflected expectations for the court's ruling, he emphasized that several larger themes played a role in the muted reaction. Trilli described Humana's Medicare Advantage and individual exchange businesses as "two jewels" of their portfolio that both may require additional care in the coming months.

"It's an interesting irony with why the deal got blocked versus the two pieces of the portfolio that by and large need care," Trilli said in an interview. "They sort of go contradictory to each other."

The ruling may also jeopardize a pending $48 billion merger between Anthem Inc. and Cigna Corp., which is facing a separate antitrust lawsuit from the U.S. Justice Department. Cigna, which closed the week up 1.40% at $146.80, could make a different deal in the event that its tie-up with Anthem collapses, Trilli added.

"I think the carryover effect is the Cigna-Anthem deal," Trilli said. "Cigna is a very attractive company in and of itself. Will it attempt to be acquired or will it turn the tables and attempt to become an acquiree? I think those are some of the things that are pushing the stock."

Anthem added 1.18% to close at $152.40 for the week.

Meanwhile, Molina Healthcare Inc.'s stock tumbled 5.18% on the week to $56.59. In separate agreements entered with Molina on Aug. 2, 2016, Aetna and Humana agreed to transfer Medicare Advantage plans covering approximately 290,000 seniors upon the completion of their merger. While expressing disappointment in the ruling, Molina remains committed to growing its Medicare Advantage product line, the company said in a statement provided to S&P Global Market Intelligence.

"Our efforts will add to the quality health care we have been providing for more than a decade to the nearly 100,000 Medicare enrollees we currently serve through our existing Medicare Advantage, Dual Eligible Special Needs Plans and Medicare-Medicaid Plans, as one of the nation's leading health insurance companies," the company said.