By Caroline Humer
NEW YORK (Reuters) – U.S. health insurer Anthem Inc ANTM.N said on Saturday it had offered $46 billion in cash and stock for smaller rival Cigna Corp CI.N but that the deal was stalled over Cigna CEO David Cordani’s role in the merged company.
The announcement comes as the biggest U.S. health insurers seek acquisitions to boost membership in government-paid healthcare plans and the employer-based insurance that is Cigna’s specialty. They say being bigger can help them negotiate for better prices and improved networks of doctors.
Anthem, the second largest health insurer in the United States, said in a statement that it had made four offers for Cigna in June, sweetening each one with better terms. The Wall Street Journal first reported on the rejected offers last week.
In a letter published as part of the company statement on Saturday, Anthem provided details of its weeks-long attempts to reach a deal with Cigna, including the steps by which it raised its offer to $184 per share.
Chief Executive Officer Joseph Swedish wrote that the company did not think investors supported Cigna’s rejection of the deal because of Anthem’s refusal to guarantee that the CEO role would eventually go to Cordani.
Cigna spokesman Jon Sandberg declined to comment.
A combined Cigna and Anthem would have 53 million customers in commercial, government, consumer and other kinds of health insurance plans. Anthem, which offers Blue Cross Blue Shield plans in 14 states, said the purchase would boost earnings more than 10 percent in the first year and that accretion would double in the second year.
DEAL MAKING
The deal making comes as insurance companies have adjusted to the major changes introduced by the President Barack Obama’s national healthcare reform law, which has created new kinds of insurance, cut government payments for medical services and introduced new healthcare taxes.
Indeed, Cigna’s name has been linked to other possible deals during the past month. Another insurer rival, Humana Inc HUM.N, had also considering selling itself, a source familiar with the matter said in late May, and the Wall Street Journal last month reported that Cigna was on of the possible buyers. Both companies declined to comment on the report.
Last week, the Journal reported that Cigna had turned down Anthem after two offers and also said that UnitedHealth Group Inc was interested in buying Aetna Inc AET.N.
Aetna itself has for years been speculated on as a buyer for Cigna, but Wall Street analysts have said one barrier would be finding a role for the chief executive of each company.
Raymond James analyst Michael Baker said last week in a note that Aetna buying Cigna would be the most accretive deal among those being discussed, but that he would not rule out UnitedHealth as a possible bidder for Cigna.
Regulatory issues would likely not be an issue with Anthem as the buyer and Cigna as a target, Wall Street analysts have said, while Anthem and Humana is another combination that could pass regulatory scrutiny.
Anthem Chief Executive Officer Joseph Swedish wrote in a letter to Cigna’s board that Anthem had proposed that Cordani could be President and Chief Operating Officer of the new company during a two-year period while Swedish remained CEO. After that time, Swedish said he would step down and that the board could appoint a new CEO.
Cigna shares closed on Friday at $155.26, down $1.15 or 0.7 percent, making the $184 offer a premium of about 18 percent. The offer is made up of 68.6 percent cash and 31.4 percent stock.
(Additional reporting by Greg Roumeliotis; editing by David Clarke and W Simon)
- Health Care Industry
- Anthem Inc
- Cigna