NEW YORK, N.Y. – After getting the cold shoulder, U.S. health insurer Anthem Inc. said it’s raising its offer to buy smaller rival Cigna Corp. for about $47 billion, including cash and stock.
Indianapolis-based Anthem said Saturday it’s proposing $184 per share, about 31 per cent of that would be in Anthem shares and the remainder in cash. The offer represents a premium to Cigna’s stockholders of 18 per cent over Cigna’s closing stock price on Friday. It said the bid also represents a premium of 35.4 per cent based on the closing price of Cigna’s shares on May 28 when reports of industry merger talks began. Anthem said the total transaction is valued at nearly $54 billion, including debt.
The announcement comes as investors have been speculating for weeks about the possibility of a major acquisition in a sector where size is becoming increasingly critical. Health insurers also have been hoarding cash from recent strong quarters and doing little to tamp down merger talks. Last month, there were reports that another rival, Humana, Inc., was exploring a sale of itself. Some analysts predict that the nation’s five biggest health insurance carriers, which also include Aetna and UnitedHealth Group, will eventually consolidate into three.
Anthem said it has been in talks with Cigna, based in Bloomfield, Connecticut, to explore a potential combination since August 2014 and said it made its proposal public because the companies have not been able to come to an agreement. The company also said it has submitted four written proposals since early June, and made previous offers of $174 per share and $178 per share, according to a letter written by Anthem’s CEO Joseph Swedish to Cigna’s board of directors that it made public Saturday. But Anthem said that a big stumbling block has been what role David Cordani, CEO of Cigna, is seeking to have at the combined companies.
In the statement, Anthem said that the combined company would be “an industry leader” with greater than $115 billion in annual revenue.
It noted Anthem and Cigna together “would gain meaningful diversification” covering about 53 million combined medical members and strong commercial, government, consumer and specialty franchises. It also cited Anthem’s long standing Blue Cross and Blue Shield brand in 14 states and Medicaid footprint via its Amerigroup brand in 19 states.
Meanwhile, Cigna would bring its leadership position, broad geographic reach and national account presence as well as its expertise in many facets of the commercial market, Anthem said.
“This combination is the absolute best strategy for both organizations to maximize the potential and lead the transformation of the health care industry,” said Swedish in a statement.
“We are disappointed that Cigna’s insistence on uncommon governance demands has impeded the realization of this combination for shareholders and all stakeholders,” he added.
Swedish said in the letter to the board that he would assume the CEO spot of the combined company and that he was prepared to have Cordani take on the role of president and chief operating officer and serve as co-chairman with him for two years. After Swedish steps down as CEO, however, there would be no guarantee that Cordani would take the CEO spot. Cigna’s board has insisted that Cordani be immediately appointed CEO of the combined company, Swedish said.
Cigna’s spokesman Matthew Asensio declined to comment.
The health care industry is facing intense pressure to squeeze out costs and find ways to capture opportunities arising from the Affordable Care Act. An ever-larger share of the companies’ business is tied to government programs and the health law’s exchanges, where cost-conscious individuals buy their own plans. Getting bigger also could give insurers increased leverage in negotiating rates with hospitals, many of which have expanded through their own mergers.
The big health insurers have long been expected by analysts to turn to mergers that will give them the heft to better compete as the industry evolves. And when The Wall Street Journal first reported last month that Humana is exploring a sale of itself, it became clear a consolidation effort in the industry was finally under way in earnest.
Cigna’s shares closed down $1.15 per share to $155.26 Friday, while Anthem’s shares were down 18 cents to $165.06.
AP Business Writer Tom Murphy contributed to this report from Indianapolis.