Cigna ends Humana acquisition talks due to price disagreement, opting for a $10 billion share buyback. The merger aimed at a $140 billion company faced antitrust concerns. Cigna’s CEO emphasizes undervaluation and plans for value-driven capital deployment, including potential acquisitions and divestitures. They are considering divesting Medicare Advantage, previously an expansion area. Antitrust worries persist in the sector, referencing past failed merger attempts, impacting Anthem and Aetna. Experts anticipate regulatory hurdles but suggest divestment could enhance merger prospects.
Cigna’s abandonment of Humana acquisition negotiations due to pricing differences led to a $10 billion share buyback plan. The potential merger aimed to create a $140 billion entity but raised antitrust scrutiny, reminiscent of past challenges. Cigna’s CEO highlights undervalued shares and strategic capital deployment. The company mulls divesting its Medicare Advantage business, signaling a shift in strategy. Yet, antitrust concerns linger, stemming from failed mergers involving Anthem and Aetna. Experts predict hurdles but see potential in divestment to ease regulatory barriers.
Cigna’s Strategy Shift Amid Healthcare Merger Complexities
Had the Cigna-Humana merger materialized, it would have formed a colossal entity valued at over $140 billion, based on their respective market valuations. However, such a union was poised to attract intense scrutiny from antitrust authorities, reminiscent of the regulatory obstacles faced by major health insurance consolidation attempts over the past six years.
The primary reason for the cessation of talks between Cigna and Humana was the disagreement over the valuation, according to insiders. Despite the conclusion of discussions, there’s a hint of potential future collaboration between the two entities, as suggested by these sources.
Instead of the failed negotiations, Cigna revealed its intention to execute an additional $10 billion share repurchase program, augmenting the total repurchase amount to a substantial $11.3 billion. David Cordani, Chairman, and CEO of Cigna, emphasized the belief in the undervaluation of Cigna’s shares, presenting share repurchases as a strategic means to enhance value for shareholders while focusing on delivering high-quality care, affordability, and improved health outcomes.
Cordani also hinted at Cigna’s openness to exploring bolt-on acquisitions aligned with its strategic vision, as well as contemplating “value-enhancing divestitures.” Notably, the company is reportedly considering divesting its Medicare Advantage business, marking a potential reversal from its previous expansion efforts in that sector.
Regarding this development, Humana declined to offer any official commentary, while Cigna refrained from responding to inquiries from Reuters regarding the concluded deal talks, as initially reported by the Wall Street Journal.
The prospect of a merger between Cigna and Humana was driven by the ambition to rival larger entities in the U.S. health insurance domain, namely UnitedHealth Group and CVS Health, by leveraging the advantages of a combined scale. Both Cigna and Humana, valued at $77 billion and $59 billion, respectively, predominantly operate in Medicare plans catering to older Americans, presenting a degree of business overlap.
Humana’s Medicare segment stands notably larger and more profitable than that of Cigna. In a bid to potentially smoothen regulatory challenges related to antitrust scrutiny, it was reported earlier that Cigna was exploring the divestment of its Medicare Advantage operations, which have underperformed, thereby potentially improving the odds of a merger’s approval, according to legal experts specializing in regulatory matters.
However, concerns regarding antitrust implications within the sector loom large. The court’s affirmation of antitrust challenges in 2017 led to the dissolution of Anthem’s pursuit of Cigna in a $48 billion deal, now operating as Elevance Health, and Aetna’s abandonment of a $37 billion endeavor to acquire Humana, which is presently owned by CVS Health.
Craig Garthwaite, a healthcare economist at Northwestern University, previously commented on the potential merger in November, foreseeing probable opposition from antitrust authorities. However, Garthwaite also suggested that the divestment of Cigna’s Medicare Advantage business could bolster the prospects of the merger navigating through regulatory hurdles successfully.
Cigna’s decision to halt talks with Humana doesn’t deter its pursuit of growth. With a $10 billion share repurchase plan and strategic considerations for acquisitions or divestitures, the company seeks to unlock value. Antitrust challenges loom large in the healthcare sector, casting doubts on major mergers. Past failures involving Anthem and Aetna underscore the complexities. Though regulatory obstacles persist, experts view Cigna’s potential divestment positively for future merger attempts, signaling adaptability amid industry challenges. The quest for growth and value enhancement continues, albeit through potentially different avenues amidst evolving market dynamics.