By Dana Mattioli, Anna Wilde Mathews and Chelsey Dulaney
Anthem Inc. agreed to buy Cigna Corp. for more than $48 billion
in a transaction that, along with a previously proposed combination
of rivals, could reshape the U.S. health industry.
Under the deal's terms, Indianapolis-based Anthem would pay $188
a share for Cigna, of Bloomfield, Conn. The deal was reported first
by The Wall Street Journal earlier this week.
The tie-up of Anthem and Cigna would accelerate the rapid-fire
reconfiguration at the top of the U.S. managed-care industry. The
biggest companies are seeking more cost efficiency and scale as the
health-care landscape changes because of the Affordable Care Act
and other factors.
The expected deal follows by about three weeks Aetna Inc.'s
agreement to buy Humana Inc. for $34 billion. In a sign of the
takeover frenzy among big health insurers, Cigna also vied for
Humana but failed to arrange a cash-heavy offer that Humana had
requested, people familiar with the matter said.
Of the five largest health insurers, only UnitedHealth Group
Inc., the largest by revenue, is sitting out the merger wave, at
least so far.
There is no guarantee that regulators would bless either deal,
and legal experts have said regulators are likely take a close look
at both.
An agreement between Anthem and Cigna caps off a monthslong,
sometimes contentious back-and-forth between the companies, with
Anthem at one point going public with its offer.
The two health insurers began holding talks about a combination
last summer, but the talks broke down over issues such as who would
run a combined company. A particular point of contention has been
the role Cigna Chief Executive David Cordani would play, including
if and when he would run it. In June, Cigna rejected a $47.5
billion offer from Anthem, worth $184 a share, calling it
"inadequate and not in the best interests of Cigna's
shareholders."
Cigna shares closed Thursday at $154.36, giving it a market
value of about $39.7 billion. Anthem closed Thursday at $155.21,
giving it a value of about $41.1 billion.
Anthem and Cigna now are the second- and fifth-largest health
insurers by revenue.
By buying Cigna, Anthem would marry two companies with a huge
footprint in commercial insurance, the type of coverage provided to
employers and consumers. Anthem, which is a Blue Cross and Blue
Shield plan in 14 states, has a commanding presence, particularly
in individual and small-employer plans, but also is a major player
in serving large, multistate employers, which it does in
partnership with other Blue-plan companies around the country.
Cigna is known for its focus on administering coverage for large
employers, as well as a burgeoning overseas presence. With its 2012
acquisition of HealthSpring, Cigna also bolstered its Medicare
business, which currently includes nearly 500,000 members. Anthem
has 618,700 people enrolled in its Medicare Advantage plans, the
private-insurer version of the federal program.
Anthem has said the combined entity would cover approximately
53.2 million people, with 66% of them in self-insured employer
plans administered by the company, 15% in traditional commercial
insurance, 11% in Medicaid and 4% in Medicare.
Anthem Chief Executive Joseph Swedish has said the Cigna deal
could generate nearly $2 billion in annual synergies, which
generally refer to cost savings from eliminating overlap, adding
that the combined company would have "the scale to drive greater
efficiency and affordability for our customers."
The rapid reshuffling of the industry will likely present a
challenge for the Obama administration, which views the health law
as its signature domestic achievement. Antitrust regulators are
expected to closely examine the implications of the two tandem
deals and a third, smaller transaction announced earlier this
month.
The Cigna deal, coming so soon after Aetna's announcement, could
up the ante for regulators at both the state and federal levels.
Analysts at Goldman Sachs Group Inc. looked at the coverage market
for big, multistate employers and concluded that antitrust
regulators might potentially consider it already on the borderline
of concentrated, even before a merger of Cigna and Anthem.
But the analysts saw little or no risk of potential divestiture
for an Anthem-Cigna combination in the Medicare Advantage,
individual or small-group business.
A recent survey of large and midsize employers by Aon PLC's Aon
Hewitt found that 46% expected a negative impact from
health-insurer consolidation, while 21% saw cost advantages in the
deals and one-third didn't expect to be affected by them.
Among employers' concerns are the possibility that integration
could be disruptive to service and the shrinking number of options
available, said Jim Winkler, a senior vice president at Aon Hewitt.
"Losing a potential vendor choice is something they view as a
negative," he said.
Anthem might also face challenges because of its role as a
licensee of the Blue Cross Blue Shield Association. To use the Blue
brands, Anthem must adhere to the association's rules. According to
Anthem's annual report filed with the Securities and Exchange
Commission, the requirements include that two-thirds of a
licensee's national net revenue from health plans and related
services must stem from Blue-branded business.
Anthem's Mr. Swedish has said the company is "confident in our
ability to obtain regulatory approvals," including from the Blue
association, and that "no substantive antitrust or insurance
regulatory issues are present that would prevent completion of the
transaction."
Write to Dana Mattioli at dana.mattioli@wsj.com, Anna Wilde
Mathews at anna.mathews@wsj.com and Chelsey Dulaney at
Chelsey.Dulaney@wsj.com
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