NEW YORK (AP) -- Health care stocks traded higher Monday after health insurer Aetna Inc. agreed to buy competitor Coventry Health Care Inc. for $5.7 billion in cash and stock.
Coventry stock jumped more than 19 percent, approaching the 20-percent premium Aetna agreed to pay for its shares. That helped make health care one of the few sectors in positive territory Monday afternoon, as the S&P 500 edged down slightly.
Aetna agreed to buy Coventry for $42.08 per share in cash and stock. The deal will significantly expand its Medicare prescription drug, Medicare Advantage and Medicaid businesses. Barclays Capital analyst Joshua Raskin said the deal is good for both companies, and in afternoon trading, Coventry shares gained $6.87, or 19.7 percent, to $41.81 and Aetna stock rose $2.03, or 5.3 percent, to $40.07.
Raskin said the purchase is a "major positive" for Hartford, Conn.-based Aetna, the nation's third-biggest insurer based on enrollment.
"The transaction boosts Aetna's footprint in government programs, and adds scale to its commercial operations, which we view as strategically important ahead of the expected implementation of exchanges and health reform starting in 2014," he wrote.
Majors health insurers have been bulking up their Medicare and Medicaid businesses lately, and Coventry is the third large program operator to agree to a sale. Cigna Corp. bought HealthSpring Inc. for about $4 billion in January, and in early July, WellPoint Inc. agreed to buy Amerigroup Corp. for $4.46 billion.
Jefferies & Co. analyst David Windley said there are a few other managed care companies that focus on Medicare and Medicaid, but there are not many potential buyers left on the market.
"WellCare, Aetna and Cigna are either about to be or already are deeply involved enough in the closing or integration of acquisitions that they're not legitimate buyers right now," he said. "United and Humana become the remaining buyers with enough mass and capital to do something, and I don't think they're as motivated."
Shares of Wellcare Health Plans Inc. declined $1.61, or 2.9 percent, to $54.84 and shares of Centene Corp. slid $1.76, or 4.2 percent, to $40.05. Molina Healthcare Inc. stock dipped 29 cents to $25.23. UnitedHealth Group Inc. picked up 11 cents to $53.24.
Elsewhere in the sector, shares Humana Inc. rose 34 cents to $68.14, and Cigna picked up 11 cents to $44.41. Medical device maker Medtronic Inc. moved up 59 cents to $41.42. Shares of drug distributors AmerisourceBergen Corp. and Cardinal Health Inc. added 22 cents to $37.76 and 30 cents to $40, respectively.