Anthem, Cigna Appear Close To Reaching $48B Merger Deal

Anthem and Cigna appear to be approaching a $48 billion merger deal, which could be announced as early as Thursday, according to people familiar with the situation, the Wall Street Journal reports (Mattioli et al., Wall Street Journal, 7/22).

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 has 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. Overall, Cigna said it was "deeply disappointed" with Anthem's actions relating to offer (California Healthline, 6/22).

Details of Latest Deal

The new deal under consideration is worth about $187 per share. According to the New York Times'’ "Deal B%K," the announcement could come this week, but discussions are ongoing and could be unsuccessful (de la Merced, "Deal B%k," New York Times, 7/22).

The combined company would have about 53 million customers, which would make it the nation's largest insurer in terms of members. UnitedHealthcare, the current largest insurer, has about 45 million members, while the recently merged company between Aetna and Humana has about 33 million members (Johnson, "Wonkblog," Washington Post, 7/22). 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 (Wall Street Journal, 7/22).

Under the latest proposal, Anthem CEO Joseph Swedish would head the combined company ("Deal B%k," New York Times, 7/22).

With the merger, Anthem could face issues because of its status as a Blue Cross Blue Shield Association licensee, the Journal reports. 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 (Wall Street Journal, 7/22).

Implications

The possible merger comes a amid a slate of consolidation among health insurers, which has been boosted in part by the Supreme Court's recent decision to uphold a major component of the Affordable Care Act ("Deal B%k," New York Times, 7/22). With caps on profits under the medical loss ratio, companies have sought to reduce administrative costs by boosting scale, analysts say. In addition, bigger companies can have more influence negotiating with providers ("Wonkblog," Washington Post, 7/22).

Companies could be in a hurry to complete mergers, because regulators likely will permit only some of the possible deals before finding the market is becoming too concentrated, according to analysts ("Deal B%k," New York Times, 7/22).

It is unclear what the mergers will mean for consumers. A study of a merger between Aetna and Prudential found premiums increased by 7 percentage points after the deal. Another study noted that increasing the number of insurers on ACA exchanges helped lower premiums ("Wonkblog," Washington Post, 7/22).