Anthem Announces Deal To Acquire Cigna for $48.4B

On Friday, Anthem announced it has agreed to acquire Cigna for $48.4 billion, the Wall Street Journal reports. The total deal, including debt, is valued at $54.2 billion (Mattioli et al., Wall Street Journal, 7/24).

Background

Cigna last month rejected a $47 billion takeover bid from Anthem, following months of negotiations. Under the offer, Anthem would have paid $184 per Cigna share. Cigna said the offer was "inadequate and not in the best interest of [its] shareholders."

Further, Cigna resisted a takeover from Anthem because of corporate governance disagreements, such as who would oversee the merged company. In addition, Cigna cited a "lack of growth strategy," potential regulatory obstacles and a data breach disclosed by Anthem earlier this year as reasons why it rejected to the offer (California Healthline, 7/23).

Details of Acquisition

In the latest deal, Anthem agreed to pay $188 per share for Cigna, a figure determined using Anthem's closing price on May 28, the Journal reports. Cigna shareholders would get 0.5152 Anthem shares and $103.40 per share held.  Anthem shareholders would own 67% of the combined company, while Cigna shareholders would have 33% (Wall Street Journal, 7/24).

The combined company's revenue is estimated to be about $115 billion (Bray, "DealB%k," New York Times, 7/24).

The combined company would have about 53 million customers, which would make it the nation's largest insurer in terms of enrollment. UnitedHealthcare, the current largest insurer, has about 45 million members, while the recently merged company between Aetna and Humana has about 33 million members.

Of the 53 million customers, Anthem said that:

• 66% are in self-insured employer plans administered by the company;
• 15% have traditional commercial insurance;
• 11% are Medicaid beneficiaries; and
• 4% are Medicare beneficiaries (California Healthline, 7/23).

Under the agreement, Anthem CEO Joseph Swedish would continue to hold the position and serve as company chair (Wall Street Journal, 7/24). Cigna President and CEO David Cordani would become the company's president and COO ("DealB%k," New York Times, 7/24).

The companies estimated that the deal will close in the second half of 2016 (Wall Street Journal, 7/24). The deal requires approval from shareholders and federal regulators ("DealB%k," New York Times, 7/24). Anthem has said it is confident that it can gain the needed approvals (Banerjee, Reuters, 7/24).

However, the deal could face challenges receiving regulatory approval, as U.S. regulators are likely to examine recent deals in the health insurance industry. Further, Goldman Sachs analysts said antitrust regulators might already consider the market for large, multi-state insurers on the edge of being too concentrated (Wall Street Journal, 7/24).

In addition, with the merger, Anthem could face issues because of its status as a Blue Cross Blue Shield Association licensee. Two-thirds of a BCBS licensee's national net revenue from health and related services are required to "stem from" business that is Blue branded (California Healthline, 7/23).

Deal a Sign of Desire for Scale

Industry observers note that the Anthem-Cigna deal could be a sign of insurers' increasing desire for scale in the post-Affordable Care Act health insurance market, Modern Healthcare reports.

Insurers are facing a more challenging business market, in part because of ACA regulations, such as:

• Medical-loss ratio requirements;
• Standard benefits packages;
• Bans on denying coverage based pre-existing conditions and
• Bans on charging higher premiums for sicker individuals.

According to Modern Healthcare, such regulations make it challenging for insurers to leverage market power and rein in administrative costs without seeking mergers (Kutscher, Modern Healthcare, 7/23).