Health-care giant Aetna Inc. has struck a deal to buy Coventry Health Care Inc. for $5.7 billion in cash and stock, a move that will make Aetna one of the largest providers of government-financed health care.

Aetna, based in Hartford, Conn., is paying $42.08 a share for Coventry, which is a 20.4% premium to Coventry’s shares as of Friday’s close. The mix is 65% cash and 35% stock. The boards of both companies have approved the deal.

In 2014, many states are expected to expand Medicaid to cover a significant portion of the currently uninsured, increasing business opportunities for companies that run those programs for states.

That year is also when state-run insurance exchanges will start operating, allowing individuals and small businesses to purchase health coverage in what is supposed to be a more understandable and competitive forum.

“As we think about 2014 and beyond, Coventry’s intense local focus with substantial small-group and individual membership, a low-cost operating model, and affordable products will complement Aetna’s [strengths and] accelerate our readiness for the consumer exchanges,” Mark T. Bertolini, Aetna’s chairman and chief executive, said on a conference call.

“With respect to Medicaid, Aetna’s footprint will now cover 14 states, where over one-third of all Medicaid and dual-eligible members reside,” Bertolini said.

The deal, which both boards of directors have approved but which still requires Coventry shareholder approval, will double Aetna’s Medicaid revenue and triple its Medicaid membership, according to Aetna, which is based in Hartford, Conn. Coventry is based in Bethesda, Md.

Aetna highlighted the fact that the purchase of Coventry will boost its share of revenue from government programs from 23 percent to 31 percent, a sign of its confidence that government-sponsored insurance will remain important to the health-care system despite persistent budget turmoil.
etna’s deal for Coventry follows on the heels of other health-care insurers bulking up their offerings by adding Medicare and Medicaid insurance providers in light of the federal health-care law that aims to provide affordable coverage for Americans.

Earlier this year, WellPoint Inc. agreed to buy Amerigroup Corp., a Medicaid-focused coverage provider, for $4.46 billion, a deal that will make the combined company the largest private Medicaid company by membership.

Last year, Cigna Corp. CI +0.07% agreed to buy HealthSpring for $3.8 billion to build up its Medicare business.

Bethesda, Md.-based Coventry mainly serves individuals, employers and government agencies through its network of insurance brokers. Aetna sees value in Coventry’s consumer-based lines, which are big in midsize and smaller markets where Aetna hasn’t focused, as well as in its government business.

In acquiring Coventry, Aetna’s share of revenue from its government business will grow to over 30% from 23% currently, Aetna said Monday. Aetna expects the acquisition to add around 45 cents to per-share earnings in 2014 and 90 cents in 2015.

Under the agreement, Coventry stockholders will receive $42.08 a share, in a combination of $27.30 in cash and 0.3885 share of Aetna for each Coventry share. Including assumption of debt, the deal’s total value is $7.3 billion, making it one of this year’s largest transactions to date.

Health-care companies are seeking new opportunities to take advantage of President Obama’s health-care reform law, under which Medicaid, the state coverage program for low-income Americans, is set to expand beginning 2014.

Aetna’s shares rose $2.14 Monday, or 5.63 percent, to close at $40.18. Coventry’s shares soared $7.10, or 20.23 percent, to close at $42.04. The cash-and-stock deal valued Coventry at about $42 per share. Both companies trade on the New York Stock Exchange.