Analysts struggled to predict Anthem-Cigna outcome (but don’t tell them that)

  • Comments
  • Print

Oh, how different things seemed a year ago to the oracles on Wall Street who follow health insurance deals.

Back then, they couldn’t give a straight answer to the simple question: Will Indianapolis-based Anthem close its proposed $48 billion acquisition of rival Cigna Corp.?

“Will the deal close? Who knows?” wrote Thomas A. Carroll, an analyst at Stifel Nicolaus & Co., in a note to his clients on May 22, 2016.

Things were changing by the hour, with rumors that the deal was running into the rocks with federal regulators, and that even Cigna executives were having second thoughts.

Carroll wasn’t the only one flipping a coin. Brian Wright, an analyst at Sterne Agee, wrote to clients on May 24, 2016, regarding rumors that the deal might be running in trouble was moving him “to the sidelines.”

Sarah Wedbush, an analyst at Wedbush Securities, said her confidence in the deal’s closing was 80 percent one month, and 60 percent the next month.

So, now that Anthem has formally pulled the plug on the deal, what says Wall Street? Well, analysts are telling clients that the outcome was clear all along—or least for a good, long while.

“We believe this was the outcome assigned the highest probability by investors,” wrote JP Morgan analyst Gary Taylor in a note to clients last week. “Therefore, we do not expect material stock price moves.”

Michael Newshel, an analyst with Evercore ISI, doubled down on that sentiment. “The only surprise here is that it took so long to reach an ending that the market had long anticipated,” he wrote.

Translation: What, us worry? Or perhaps more accuately: What, we didn't have much of a clue, but now that's it's over, we were sure all along.

And this from Cantor Fitzgerald analyst Steven Halper, on May 11, after a Delaware Court ruled against Anthem, allowing Cigna to terminate the deal: “The ruling has no impact on our investment thesis, as we assigned a very low probability to Anthem’s ability to complete the merger.”

Yes, the very next day, May, 12, Anthem announced it was giving up on the deal.

To be fair, Anthem executives refused to signal last year that they were going to quit, even after the Wall Street Journal reported the two companies were privately bickering and “fumbling submissions to regulators.”

Anthem CEO Joe Swedish said at the time he was confident the deal would remain on track. He said the rumors that the deal was in serious trouble were unfounded.

“Notwithstanding all the noise out there, media relations and other kinds of pieces—bits and pieces of information—the reality is, the process is progressing extremely well,” he said last June.

He added that the two companies were “working very, very well together. And I think that we are incredibly well aligned. … So I am not too distracted by that noise.”

How the companies went from “well aligned” to something else is a bit of a mystery—something only the top dealmakers inside both companies can answer.

But in less than a year, Swedish’s company went from praise to condemnation of Cigna, and declared it would not pay a $1.85 billion breakup fee to longtime target.

“Cigna’s repeated willful breaches of the merger agreement and its successful sabotage of the transaction has caused Anthem to suffer massive damages, claims which Anthem intends to vigorously pursue against Cigna, Anthem said in a written statement May 12.

That kind of language is a far cry from the sweet cooing Anthem was doing just a few months ago. Little wonder Wall Street couldn’t figure out what was going on.

Please enable JavaScript to view this content.

Editor's note: IBJ is now using a new comment system. Your Disqus account will no longer work on the IBJ site. Instead, you can leave a comment on stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Past comments are not currently showing up on stories, but they will be added in the coming weeks. Please note our updated comment policy that will govern how comments are moderated.