Anthem will acquire Cigna for $188 per share, the health insurance companies said Friday. The deal, including Cigna's debt, will be worth $54.2 billion. It is the largest-ever health insurance transaction and part of the mass-scale merger race that is fundamentally changing the industry and fueling concerns over costs and competition.
The definitive agreement comes a little more than a month after Anthem went public with an offer of $184 per share, which Cigna rejected. The two sides had sharp disagreements over who would lead the combined company, which will have $115 billion of revenue, and if Anthem would receive approval from its sponsor, the Blue Cross and Blue Shield Association.
Industry analysts have pointed out several advantages to an industry consolidation.
A larger insurer can gain more leverage and negotiating power to use in hashing out rates with care providers. However, the two mega deals announced this month are going to be scrutinized heavily by regulators, who want to ensure that they do not gain so much power that they can dominate the market.
The impact these big acquisitions have on consumers likely won't be felt for at least a year, because insurers have already finalized most of their plans for coverage that starts in January. A combination may lead to fewer choices and some price changes for consumers, depending on where they live and who already is in their market.
Anthem's combination with Cigna will result in a company with a much broader base over which to spread costs and expenses, and it could make technology investments over the industry's biggest customer pool.
Data and technology are playing a growing role in monitoring patients and care. At a very basic level, that means things like tracking whether patients are keeping up with their immunizations.
Insurers also are trying to give consumers better information on the cost and quality of the care they buy, based on their coverage. Deductibles and other out-of-pocket costs have been rising for years. That leaves a growing number of consumers with bigger bills to pay before most of their insurance coverage starts, so it can encourage more to shop around.
Anthem officials have noted that a Cigna deal will help build their company's Medicare Advantage enrollment in states like Texas and Florida. Medicare Advantage plans are privately run, fast-growing versions of the federally-funded program for people over age 65 and the disabled.
Anthem, based in Indianapolis, is currently the nation's second-largesthealth insurer, while Cigna ranks fourth in terms of enrollment. Anthem Inc. specializes in selling individual coverage and insurance to workers of small businesses. It also has grown its government business, which includes Medicare, Medicaid and coverage of federal employees.
Health insurance is Cigna Corp.'s main business, but it also sells group disability and life coverage in the U.S., and it has a growing international segment that Anthem lacks. Much of Cigna's health insurance business involves coverage where the employer pays the claims and then hires Cigna to administer the plan, a growing and less-profitable form of coverage in employer-sponsored health care.
The deal is targeted to close in the second half of 2016. Cigna stockholders still need to approve the agreement, and Anthem shareholders need to approve the issuance of shares in the transaction.
Anthem stockholders will own about 67 percent of the combined company, with Cigna shareholders owning approximately 33 percent.
The Anthem board will expand to 14 members. Cigna's President and CEO David Cordani and for independent directors from Cigna's current board will join the nine current members of Anthem's board.
Cordani will serve as president and chief operating officer of the combined business, with Anthem's Joseph Swedish as chairman and CEO.
The Associated Press contributed to this story.
Medicare Blog | Medicare News | Medicare Information
(Bloomberg) -- Aetna Inc. agreed to buy Humana Inc., the second-largest provider of private Medicare insurance, for $37 billion in cash and stock to broaden its health-care coverage.
The transaction values Humana at $230 a share based on yesterday’s closing price for Aetna, the companies said in a statement Friday. That’s 23 percent above Humana’s last close.
The acquisition comes amid a period of consolidation in the industry, with all of the five biggest health insurers looking at deals. Humana’s 3.2 million Medicare Advantage members have made it a target, since more Americans are turning 65 and becoming eligible for the health program for the elderly and its private insurer-run version.
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“Medicare Advantage is a coveted space,” Michael Bernstein, a partner at Baird Capital’s U.S. private equity team who focuses on health care, said in an interview before the transaction was announced. “To develop a similar scale in Medicare would take a great deal of work and time, which would be bypassed by making that transaction happen.”
Terms of Deal
Humana shareholders will receive $125 in cash and 0.8375 of an Aetna share for each of Humana’s. Aetna’s shareholders will own about 74 percent of the combined company and Humana’s will own about 26 percent.
The deal is expected to close in the second half of 2016. Aetna’s chief executive officer, Mark Bertolini, will be chairman and CEO of the combined company.
Medicare membership is projected to rise to 68.4 million in 2023, up 26 percent from this year, according to the Centers for Medicare & Medicaid Services. Humana, based in Louisville, Kentucky, covers more than 14 million people through commercial, Medicare and Medicaid plans.
Centene Corp. said Thursday it agreed to buy Health Net Inc. for about $6.3 billion in a deal that creates the biggest private administrator of Medicaid, the federally funded health program for the poor. Cigna Corp. rejected a $47 billion takeover bid from Anthem Inc. last month, saying the offer wasn’t in the best interests of shareholders and Anthem executives weren’t fit to lead a merged insurance giant.
Some of the consolidation talk has been fueled by the Patient Protection and Affordable Care Act. Known as Obamacare, the 2010 law overhauled the U.S. health-care system with new rules that push insurers to look for savings. The law also provides subsidies to help people afford coverage, creating millions of new customers that the companies are racing to capture.
A Supreme Court ruling upholding those subsidies for more than 6 million people has helped clear the path to dealmaking. The 6-3 decision on June 25 in the King v. Burwell case said the U.S. can continue to give people money to help them buy coverage on the federal healthcare.gov website.
Citigroup Inc. and Lazard Ltd. provided financial advice to Aetna, while Davis Polk & Wardwell LLP is acting as legal advisor. Goldman Sachs Group Inc. gave financial advice to Humana and Fried, Frank, Harris, Shriver & Jacobson LLP is its legal advisor.