Einhorn wins on Aetna-Coventry dealAugust 20, 2012: 3:44 PM ET
It looks like hedge fund manager David Einhorn, who has become something of a Delphic oracle to investors, scored big again Monday.
Last week, Einhorn's hedge fund Greenlight Capital disclosed stakes in several health insurance firms, including Aetna (AET) and Coventry Health Group (CVH), as part of his fund's quarterly reports to the SEC . He acquired these positions sometime in the second quarter. The Supreme Court's June 28th decision to uphold health care reform came at the very end of the quarter.
Shares of Coventry Health Group soared nearly 20% Monday, after insurer Aetna announced a $5.7 billion takeover of the Medicare and Medicaid provider. Coventry's stock traded near $42, its takeover price. Aetna's shares also moved up 4% Monday.
Typically when Einhorn casts his gaze on a stock, investors run away. Einhorn outlined reasons for the impending downfall of Lehman Brothers, months before the investment bank imploded. Last October, Einhorn's presentation on the failings of Green Mountain Coffee Roasters (GMCR) single-handedly cut the company's stock in half. Green Mountain's slowing growth and its quirky accounting pushed it down further.
Meanwhile, analysts and bankers in the health insurance sector expect the pace of deals to continue at a rapid clip.
Now that healthcare reform is more assuredly the law in the United States, managed care companies like Aetna are scrambling to boost their exposure to consumers who use government healthcare programs. Earlier this year, insurance company WellPoint (WLP) agreed to acquire Medicare provider Amerigroup (AGP). Last year, Cigna (CIG) bought HealthSpring.
A banker close to the Aetna-Coventry deal said that potential buyers are circling the remaining pure play Medicare and Medicaid companies like Centene (CNC), Molina Healthcare (MOH). The banker said health care insurers are rushing to wrap up these buyouts before early 2013. Insurers want to guarantee that these deals are approved by state and federal regulators before health care reform takes effect in 2014.
Investors don't appear to be betting on near-term takeovers of either Centene or Molina, as shares of both companies traded down Thursday. But for Einhorn, it looks like another clear victory.