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Reports: Blockbuster Anthem-Cigna deal for $48B imminent

July 23, 2015

Anthem Inc. as early as Thursday afternoon could announce it has struck a $48 billion deal to acquire rival health insurer Cigna Corp., according to separate reports by the Wall Street Journal, Bloomberg News and Reuters.

Citing unnamed sources, the news organizations said Indianapolis-based Anthem has offered $187 or $188 per share for Connecticut-based Cigna, which is the nation’s fourth-largest health insurer. Anthem, which operates Blue Cross health plans in 14 states, is the nation's second-largest health insurer. The offer is a few dollars higher than an earlier offer.

“It was a reasonably good price to begin with,” Ana Gupte, an analyst at Leerink Partners in New York, told Bloomberg News on Wednesday. “Shareholders were happy with $184 even. And they were telling Anthem and Cigna to resolve their differences and get the deal done.”

On June 20, Anthem revealed its $184-per-share offer, but said Cigna was rejecting the deal over the future role of its CEO, David Cordani, and the number of seats for Cigna representatives on the combined company’s board of directors.

Reuters reported Wednesday that those issues had been resolved, with Cordani taking the No. 2 spot behind Anthem CEO Joe Swedish.

The combined Anthem-Cigna would have more than $116 billion in expected revenue this year and more than 53 million people enrolled in health plans. Industry leader UnitedHealth Group is expected to have more than $154 billion in revenue this year and has 41.6 million people in its health plans.

The Anthem-Cigna deal would be the second insurance mega-merger this year. On July 3, Hartford-based Aetna Inc. agreed to pay $34 billion to acquire Louisville-based Humana Inc.

The Wall Street Journal noted that Cigna had also tried to buy Humana but failed to arrange a cash-heavy offer that Humana had requested.

On July 2, St. Louis-based insurer Centene Corp. announced a deal to acquire California-based Health Net Inc. for $6.3 billion.

“The Aetna-Humana deal left Cigna with many fewer dance partners, because both of those companies were potential merger candidates for Cigna,” Gupte said.

Health insurers have had their revenue boosted but their profits margins squeezed by the Affordable Care Act, so they are trying to merge to achieve economies of scale. They also want to boost their negotiating power with hospital systems.

Anthem also wanted to grow its business to have significant numbers in all types of insurance—individual, employer-sponsored, Medicare and Medicaid. That would help it keep customers over a longer period of time.

That’s critical because the Affordable Care Act is pushing both doctors and hospitals to keep patients healthier so they need less health care. But the investments needed to achieve that goal only save money over many years—requiring health insurers to hold on to their customers for longer than usual.

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