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The Dose

Welcome to The Dose, which tackles the business and economics inside the turbulent world of health care and life sciences in Indiana. Your host is John Russell. To contact me call 317-472-5383.

Analysts try to reassure clients over Anthem-Cigna surprises

May 9, 2016

Nothing to worry about here, folks.

That seems to be the growing reaction by Wall Street analysts to two big surprises last week involving Indianapolis health insurer Anthem Inc.

Normally, analysts are a nervous lot, and they hate unexpected announcements involving mega-deals or changes in senior management. But that’s what they got last week, in spades.

First on Wednesday, Anthem said its longtime chief financial officer, Wayne DeVeydt, was leaving after nine years, “due to family commitments and philanthropic work.”

News of his departure came out of the blue. DeVeydt, CFO since 2007, has been a central figure in helping Anthem navigate through the recession, deal with the Affordable Care Act, and negotiate the company’s planned $54 billion acquisition of rival Cigna Corp.

Then two days later, Cigna came out with a lightning bolt of its own in a regulatory filing, saying the deal with Anthem might drag into next year.

Such talk can send analysts into a tizzy, wondering if there’s a serious issue that is emerging, such as doubt that regulators will bless the combination or even whether senior executives (or their boards) are having second thoughts.

But if analysts were thrown for a loop, they’ve been good at hiding it. In fact, several have been sending out reassuring notes to their clients over the past few days, saying the deal seems to be on track and that DeVeydt’s departure is nothing to be alarmed about.

J.P. Morgan, in a note today to clients, said “we believe in the explanation provided” by Anthem over DeVeydt’s departure.

“Many investors continue to speculate on possible motivations beyond those provided by the company,” wrote J.P. Morgan analyst Gary P. Taylor. “We believe this conjecture is ill-founded. Mr. DeVeydt has an important array of priorities in his personal life that are inspirational, rather than questionable.”

On the issue of a deal with Cigna possibly dragging out for months, Taylor also struck a reassuring note. He pointed out that 11 of the 26 states affected have approved the acquisition so far, and the Department of Justice’s approval process is proceeding “as expected.”

“For our part, we continue to believe DOJ is likely to approve the transaction with minimal divestitures,” he wrote.

Other analysts sent out similar calming words–particular over Cigna’s filing that the deal might take a few months longer than expected to wrap up.

“We see nothing meaningful in the release that would change the direction of operations,” wrote Barclay’s analyst Joshua R. Raskin. He added: “We don’t think this changes the likelihood of the deal closing but perhaps speaks to a later close in 2016.”

Wedenbush analyst Sarah James wrote she was 80 percent confident that the deal would close–up from 60 percent three months ago.

Anthem’s chief executive, Joe Swedish, said two weeks ago he expected the acquisition of Cigna to be completed in the second half of this year. On Friday, Jill Becher, an Anthem spokeswoman, said the insurer continued to expect the transaction to be completed on that timeline.

The stocks of both company have dipped–but only a little–since the talk Friday about the deal dragging out.

About the most cautious note was sounded by Jeffries analyst David Windley, who said Cigna’s talk of a delay “seemed to be more than just a formality.”

“The company admitted that it may have underestimated the complexity, breadth, and depth of the review process,” he wrote. “This signals that the deal, if approved, may close in the latter part” of 2016 or even 2017.

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