Analysts say the health insurance merger rumours are starting to resemble 'Game of Thrones'

The health insurance industry is in merger overdrive.

Last month, the Wall Street Journal reported that several companies including Aetna, Cigna, and possibly Anthem that are interested in buying Humana.

Humana is reportedly looking for a buyer.

And then on Monday, the Journal reported that Anthem approached Cigna for a merger. The two companies had been in talks for several weeks.

In a note on Tuesday, Deutsche Bank analysts ask, “Who Will Win the Managed Care ‘Game of Thrones’?”

Here’s Scott Fidel and Shawn Bevec:

For the first half of 2015, the story with the MCO [Managed Care Organisation] stocks has been about rising anticipation of large scale M&A; [Monday’s] fusillade of media headlines suggest that all of the industry leaders are fully mobilizing their financial arsenals for the developing consolidation showdown.

Investors have equipped the MCO management teams with additional equity firepower by inflating the P/E multiples across the group while the cost of debt remains historically cheap. While the combination of high P/E multiples and the low cost of money makes M&A likely irresistible for the management teams, the elevated take-out multiples could also dampen future financial returns for the sector.” 

In the healthcare sector more broadly, companies are arguing that mergers would lower their costs, translating to cheaper healthcare for consumers.

Also, the Journal notes that the Affordable Care Act is bringing in new, potential customers to the health insurance market, and that means companies in the industry have to compete better.

In this game of bids and counter-bids, Deutsche Bank tries to make sense of who could gain, and who could lose.

According to the analysts, a merger between Anthem and Cigna would gradually add to earnings per share.

Overall, a deal between Aetna and Cigna would be best because their businesses overlap significantly, and there will be plenty of cost-saving synergies.

Here’s how the firm sees any of the myriad combinations being discussed. 

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