Humana horizontalHumana and Aetna have jointly disclosed, via publicly released documents, what the firms perceive to be the major risk factors associated with their proposed merger/buyout. This document is called a Schedule 14A, or “proxy,” and is filed when a shareholder vote is required. In this case, shareholders are being asked to vote whether they approve of the proposed deal between Aetna and Humana.

Humana’s shareholders will vote on Oct. 19; in addition to voting yes or no on the overall deal, shareholders also are going to vote on whether to approve the compensation of Humana’s execs in connection with the merger, although this vote is considered non-binding. (For more information on this read here.)

The “risks” section of the Aug. 28 proxy consists of eight pages and lays out a pretty clear summary of what could potentially go awry in this deal. Here are outtakes from the list:

  • Humana’s shareholders could see their payouts suffer if Aetna’s shares go down in value: As part of the deal, Humana shareholders will receive $125 in cash and 0.84 shares of Aetna stock per Humana share owned. It’s worth noting that since July 2, Aetna’s shares are down 13.4 percent, a good deal worse than the Standard & Poor’s 500, down 7.8 percent in that time. Meanwhile Humana is down 7.2 percent for that period.
  • Aetna and Humana say they may have difficulty attracting, motivating, and retaining execs, and other key employees, in light of the mergers: According to the proxy, “employee retention may be particularly challenging during the pendency of the mergers, as employees of Aetna and Humana may experience uncertainty about their future roles with the combined business.”
  • Humana and Aetna are facing multiple class-action lawsuits looking to stop the deal: As of Aug. 27, there were three class-actions filed by what the proxy called “purported Humana stockholders” challenging the deal, two of which were filed in Jefferson County Circuit Court. The suits allege Humana’s board of directors failed to maximize the value to Humana’s stockholders, placed their own interests above Humana’s stockholders, and the deal undervalues Humana, among other allegations.
  • Aetna will incur massive debt from the acquisition: In order to make this deal go through, Aetna expects to incur additional acquisition-related debts of $16.2 billion and assume Humana’s existing $3.8 billion debt. This totals $20 billion in debt, a huge number. The proxy warns this will leave Aetna less able to respond to changing business conditions, and could reduce Aetna’s investments in product development, ability to repurchase shares, and make capital expenditures. Aetna also will have to spend a lot of cash to service this debt, more than the amount either it or Humana required before the mergers.
  • If Aetna’s credit rating gets downgraded it will hurt its business in multiple ways: After the merger was announced, several major credit-ratings agencies — Standard & Poor’s, A.M. Best, Fitch, and Moody’s — reviewed Aetna’s debt and financial strength for a possible downgrade. If Aetna is downgraded it could seriously impact its business and results. In addition, the price of borrowing more money would rise.
  • The mergers may keep Aetna and Humana’s execs from focusing on day-to-day business operations: The proxy warns the merger may be keeping some execs preoccupied: “In addition, at times, the attention of certain members of each company’s management and resources may be focused on completion of the mergers and the integration of the businesses of the two companies and diverted from day-to-day business operations, which may disrupt each company’s ongoing business and the business of the combined company.”
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David Serchuk
David Serchuk is a staff writer at Insider Louisville. He is a former editor at Forbes.com, and an ex-reporter at Forbes magazine. He's written for NPR, CNBC.com, New York, Pittsburgh, Louisville and other publications named for places. He enjoys writing about business, music and other things as well.