After weeks of patiently waiting and absorbing rumors that a big deal was imminent, the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF) and the equal-weight SPDR S&P Health Care Services ETF (NYSEArca: XHS) finally have some big consolidation to crow about.
After the close of U.S. markets last Thursday, Aetna (NYSE: AET) said it will acquire smaller rival Humana (NYSE: HUM) for $37 billion in cash and stock. Combined, Aetna and Humana would rival Anthem as the second-largest health insurer in the U.S., according to Reuters.
For weeks, investors and the financial media have been expecting a wave of consolidation that could see marriages among some of IHF’s largest holdings. Earlier this week, Cigna (NYSE: CI) rejected a $47 billion takeover offer from Anthem (NYSE: ANTM). Dow component UnitedHealth (NYSE: UNH) has made overtures for Aetna. [More M&A Coming for This Healthcare ETF]
As of July 2, Aetna was IHF’s third-largest holding at a weight of almost 6.6% while Humana was the ETF’s eighth-largest at a weight of 4.6%. XHS has a 2% weight to Aetna while the ETF devotes 1.65% to Humana.
Aetna’s deal for Humana was the second last week to affect holdings of IHF and XHF, two of this year’s top-performing industry ETFs.
Also last Thursday Centene (NYSE: CNC) said it will acquire rival Health Net (NYSE: HNT) for $6.8 billion in cash and stock, a purchase price that also includes the assumption of $500 million in debt.
That $6.8 billion is also comparatively small to other deals that IHF constituents have engaged in. For example, UnitedHealth agreed to acquire Catamaran for $12.8 billion in cash earlier this year. In 2012, Express Scripts (NasdaqGM: ESRX), IHF’s second-largest holding, sealed a $29 billion acquisition of Medco. [Small Deal Doesn’t Move Healthcare Providers ETFs]
In May, Quest Diagnostics (NYSE: DGX), also a member of IHF’s lineup, was rumored to be a takeover after reportedly hiring Goldman Sachs to explore a sale.
Attention will now likely shift to Cigna as a potential target for UnitedHealth. Those are IHF’s largest and fourth-largest holdings, combining for 18.5% of the ETF’s weight. XHS devotes 4.2% of its weight to Cigna and UnitedHealth.
iShares U.S. Healthcare Providers ETF