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Aetna, Humana, Centene and Health Net: Key votes loom

Anthem Health Insurance
Gus Ruelas | Reuters

Shareholders will get their say this week on two proposed health insurer mergers: Aetna's $37 billion offer for Humana, and Centene's $6.3 billion bid for Health Net.

The major independent proxy advisors, Institutional Shareholders Service (ISS) and Glass Lewis & Co., have given both deals a green light, and Aetna and Humana investors are scheduled to vote on Monday afternoon. Centene and Health Net shareholders will cast their ballots Friday afternoon.

The votes, which come three months after the deals were announced, are an important step in the process. However, regulatory approval for the transactions deals is expected to extend well into 2016.

Read MoreAnthem makes new offer to Cigna as Aetna moves in on Humana

ISS and Glass Lewis both judge the cost savings and synergies that will result from the combination of Aetna and Humana to be positive, though they take slightly different views on the impact for Aetna shareholders.

"The acquisition of Humana will have a significant dilutive impact on Aetna shareholders. However, the combination of the two companies is expected to bring significant synergies," ISS analysts wrote in their recommendation to Aetna investors.

They also noted that the competitive merger negotiations between the major insurers in the first half of the year meant that "the deal was reached as part of a robust auction process."

Glass Lewis advisers believe the benefits of the combined company's larger scale and diversification will bring Aetna shareholders value, because the investors will retain a 70 percent equity share of the company following the merger.

Humana shareholders will receive $230 per share under the deal, $125 of that in cash. Glass Lewis concludes the cash provides Humana investors with a "financially compelling opportunity," while still having equity participation in the combined company.

Glass Lewis did express some concern about the golden parachute clause for Humana executives that is written into the agreement.

"We are concerned that (Humana) has agreed to accelerate the vesting of equity awards for certain (named executive officers) upon a change in control of the company. This provision may result in significant windfalls for executives," the proxy advisory firm noted, though not with enough concern to diminish support for the deal.

Centene – Health Net Vote October 23rd

The two advisory firms also recommend shareholders approve Centene's $6.3 billion proposed acquisition of Health Net, saying that together the two Medicaid plan providers will be able to better compete in an environment of health care consolidation.

Centene's shares have fallen nearly 17 percent since the deal was announced in early July—a steeper decline than the overall health insurance sector, which has fallen about 5 percent over the same period.

Still, ISS analysts say they do not believe Centene's decline represents negative shareholder support for the merger, or an indication of the Medicaid insurer's financial performance.

"It is possible that (Centene's) relatively greater decline (versus the segment) since announcement reflects the fact that pre-announcement prices were inflated by takeover speculation, which has been leaking out of the market price since then," ISS wrote.

If approved by shareholders, Centene and Health Net expect that the deal will close in early 2016. The firms received early antitrust clearance in August from the justice department under the Hart-Scott-Rodino act.

In addition, the merger still faces approval from state insurance regulators.

For Aetna and Humana the regulatory hurdles will be more complex, because of the size of the deal. Last month, Department of Justice officials made a second request for more information from the firms as part of an antitrust review, which observers had expected.

Analysts say regulators will likely look at the Aetna-Humana deal in conjunction with Anthem's $54 billion proposed merger with Cigna. Federal and state regulators are expected to consider carefully how consolidation among the four major health insurers impacts not just consumers but providers across health care markets. Meanwhile, both mergers may require divestitures in order win approval.

Anthem and Cigna have filed preliminary proxy information and are urging their shareholders to support the deal, but the firms have not yet scheduled a vote. Neither firm has provided any regulatory updates yet on the status of their Justice Department submission under the Hart-Scott-Rodino antitrust act.

CORRECTION: A headline in an earlier version misspelled Centene.