By Dana CimillucaDana Mattioli, and Liz Hoffman
A five-way takeover frenzy broke out into the open over the
weekend, with Anthem Inc. taking its $47.5 billion bid to buy Cigna
Corp. public in a contentious move that shows the pressure the big
health insurers are under to quickly find merger partners.
Anthem said Saturday it has offered $184 in cash and stock for
Cigna, making the bid public to influence Cigna through its
shareholders, according to a person familiar with the matter.
On Sunday, Cigna said it rejected the offer, calling it
"inadequate and not in the best interests of Cigna's shareholders."
A key point of contention involves who would run the combined
firm.
Anthem's pursuit of Cigna comes as Cigna as well as Aetna Inc.
size up Humana Inc., which has privately offered itself for sale.
Aetna in the past few days made a takeover proposal to Humana,
which has a market value of $30 billion, said people familiar with
the overture. UnitedHealth Group Inc., meanwhile, recently made a
takeover approach to Aetna.
The five big managed-care companies are jockeying for deals that
will enable them to become more efficient and better respond to
changes in the health-care landscape in the U.S. brought on by the
Affordable Care Act and other developments. Analysts say it is
likely regulators will allow only one or two such combinations, so
the firms are racing to be the first ones to find merger
partners.
The back and forth that broke out this weekend shows that
Anthem, based in Indianapolis and until last year known as
WellPoint, made a number of bids for Cigna privately in June. Those
details were in a letter Anthem Chief Executive Joseph Swedish sent
to Cigna's board that Anthem released that day. Among other things,
it revealed disagreements between the two sides over the role Cigna
CEO David Cordani would play in a combined company. He wants to be
CEO, if not immediately then after a period of time, which Anthem
refuses to guarantee.
In its response, delivered Sunday in a public letter from Mr.
Cordani and Cigna Chairman Isaiah Harris to Anthem's board, Cigna
indicated it's not in principle opposed to the tie-up.
Nevertheless, it said, "We are deeply disappointed with your recent
actions. We have been engaged in good-faith discussions with Anthem
to determine whether a potential strategic combination is in the
best interests of Cigna's shareholders."
It called Anthem's idea of putting Mr. Swedish in charge of the
combined company and the integration "disconcerting and risky."
Rather, Cigna says integrating the two companies should be a "joint
and collaborative" endeavor.
The Journal had reported last week that Anthem was pursuing
Cigna, that it had bid about $175 a share, which was rejected, and
that Mr. Cordani's potential role was a sticking point.
Anthem, for its part, said it has been in negotiations with
Cigna since August 2014, and it bemoaned what it called its rival's
refusal to "reasonably negotiate." It said the governance demands
Cigna is making are excessive, given the premium Anthem says it is
offering.
Anthem said it submitted four bids in June, and that the most
recent, of $184 a share, was made on Thursday. Shares of Cigna,
which is based in Bloomfield, Conn., closed Friday at $155.30,
giving the company a market value of $40 billion.
A combination would create a big competitor in the commercial
health-insurance business, with strong positions among individual,
small-business and big-employer clients. It would vault Anthem, the
nation's second-largest health insurer, closer to UnitedHealth in
size. Cigna's revenue last year totaled $34.9 billion, while
Anthem's was $73.9 billion.
UnitedHealth had revenue of $130.5 billion, including its
health-services arm, Optum, while Aetna's was $58 billion and
Humana's was $48.5 billion.
Anthem is a significant competitor in the individual and
small-group markets in the 14 states where it holds the rights to
be the Blue Cross and Blue Shield insurer. It also has a strong
role among national employers. Cigna, meanwhile, focuses closely on
self-insured commercial business and has a significant and growing
position overseas.
A merged company would have a bigger presence in the
fast-growing Medicare Advantage market, an area where both
companies have lagged behind competitors. Together, Anthem and
Cigna would have more than a million Medicare members. Anthem also
has a major presence in Medicaid.
An attempt to seal an Anthem-Cigna merger could be complicated
by Anthem's role as a Blue Cross and Blue Shield insurer, however,
which Cigna also highlighted in its letter. The Blue Cross and Blue
Shield plans hold geographic rights to use the Blue brand only in a
particular area, and they also agree to certain limits on their
non-Blue business.
It is unclear how Anthem would manage the legacy Cigna business
in states where another insurer is the local Blue. In its letter,
Anthem said it was "confident in its ability to obtain regulatory
approvals" and this "includes matters related to the Blue Cross
Blue Shield Association."
Cigna countered by highlighting potential complications arising
from Anthem's affiliation with the Blue system, including
litigation against it. It also noted a data breach Anthem
experienced in February.
Humana has held sale talks with companies including Cigna and
Aetna, people familiar with the matter have said.
Humana, based in Louisville, Ky., gets the bulk of its revenue
from its business administering the private version of the federal
Medicare program. The company is seen as a prize because of its
powerful Medicare franchise, which is growing rapidly as baby
boomers age into eligibility and opt for these plans, known as
Medicare Advantage.
Write to Dana Cimilluca at dana.cimilluca@wsj.com, Dana Mattioli
at dana.mattioli@wsj.com and Liz Hoffman at liz.hoffman@wsj.com
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