Anthem has submitted a cash-and-stock offer to acquire rival insurer Cigna expected to amass $47 billion, one of many health insurance conglomerations expected to take place over the next decade. With Humana recently shopping themselves around for potential buyers, many others will follow suit as Obama’s healthcare overhaul works to make companies bigger.
One major holdup in securing final approval involves board structure. Cigna CEO David Cordani would lead the conglomerated company under their proposal, while Anthem would rather shareholders decide on the new company CEO and have even considered raising the offer to $54 billion according to USA Today and other news outlets. Once the board has been structured and the deal has been finalized, industry analysts believe a “Big Three” will emerge from the likes of Aetna, Cigna, Humana, Cigna, and United Health Group. This particular merger would increase Anthem’s revenues to $115 billion, which would be substantial yet still smaller than United.
Cigna, known for their employer health plans and dental coverage, would compliment Anthem’s Medicaid and Blue Cross/Blue Shield products in the 14 states they currently provide plans in. Anthem would give Cigna $184 per share at an enterprise valuation of $53.8 billion, forming a 76.3 percent to 23.7 percent partnership favoring Anthem. While each of Anthem’s submitted four offers have been more lucrative than the last, Cigna simply won’t budge on governance. Therefore, Anthem found a new strategy: take the intent to purchase announcement public.
The logic behind Anthem taking this announcement public stems from Cigna’s resistance towards an amicable solution to the proposed board structure. In an effort to pull Cigna’s board back to the drawing board, Anthem is relying heavily on media involvement. In a detailed letter sent to Cigna, Anthem clearly outlines their understanding of governance issues and even offered Cigna supermajority board approvals and to retain Cordani as COO, yet Mr. Cordani has persistently pressured Anthem’s CEO Joseph Swedish to keep his current CEO position when the merged company is formed despite the more lucrative offer proposed by Anthem. The letter continues on to dictate how higher per-share premiums would negate renegotiation of governance, meaning Anthem may need to either up their bid or recant the offer completely.
Anthem’s offer would add 29 percent to Cigna’s average closing price spanning twenty NYSE sessions, yet would potentially compel Aetna to merge with Humana to remain competitive with United Health Care. Both companies could benefit as Republications still seek healthcare reform ahead of the Presidential campaign circuit. Anthem closed Friday trading at $165.06 per share while Cigna ended at $155.26.
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