Anthem (ANTM), has helped to consolidate the Insurance Industry even further, by purchasing Cigna, for a reported $54.2 Billion, that’s billions! This transaction serves to further reduce the major players in the industry from five major players to three.
The proposed purchase is the largest ever in the Insurance Industry, exceeding Aetna’s recent acquisition of Humana by more than $17 Billion dollars. The purchase will be subject to heavy duty scrutiny by State and Federal Regulators.
The reasoning behind these recent acquisitions appears to be directly related to the Affordable Care Act. Its implementation has increased the industry’s difficulty to raise prices.
The authorities, both State and Federal, will be keeping a watchful eye on both acquisitions and how they impact the marketplace for Medicare and both the individual and commercial insurance industries. The acquisition is scheduled to be finalized in the middle of 2016. Anthem CEO, Joseph Swedish will serve as Chief Executive Officer and Chairman of the merged companies. David Cordani, of Cigna will assume the title of President and Chief Operating Officer.
Should the deal between the two companies go south, both companies would be liable to pay the other, up to 3.8 percent of the value of the deal.
Both companies administer self-insured plans for major companies and organizations. The only other companies that provide these services are: UnitedHealth Group and Aetna. Anthem and Cigna, combined, will have 53 million members. UnitedHealth, as of the end of June, had approximately 56 million members.
Anthem intends to pay $103.40 in cash and 0.5152 of its shares for each Cigna share. The resulting value of the deal is valued at $188/share. According to Reuters, “the equity value of the offer is valued at $49.11 billion, based upon the 261.2 million shares outstanding as of 3/31.”
Anthem’s CEO, Joseph Swedish, said in a conference call, “We will remain Blue.” Mr. Swedish also said that the combined company will follow “Blue Rules.”
Mr. Swedish is quoted as saying that: “The spirit of our collaboration going forward is total collaboration,” further stating that his and Cordani’s different roles and responsibilities “are perfectly aligned.”
Swedish said he intended to remain CEO of the combined company for two years, and afterward would become chairman.
The shrinkage of the number of players in this marketplace will most certainly increase the scrutiny, from both the Federal and State Government. Whether this benefits the consumer is yet to be determined. Interpretation and implementation of President Obama’s health care programs have not been easily accepted by the public at large. Early technical issues didn’t provide the populace with confidence. Now that these problems have at least been reduced, but not totally eliminated, perhaps, greater participation is in the offering.
As an addendum to the above, in the OP-ED pages of the November 6, 2015 Edition of the NY Times, David Brooks, talks about the impending increase in Healthcare costs. Mr. Brooks maintains that these costs increased minimally, while we were buried in the Recession. Now with the improving economy, things may change. For more information about your impending increasing healthcare expenses, please read Mr. Brook’s article, entitled: “Great News! We’re Not Doomed.”
UBS Investment Bank is Anthems lead Financial Advisor, Credit Suisse also provided financial advice and White & Case served legal advisers.
Morgan Stanley is Cigna’s financial adviser and Cravath, Swaine & Moore its legal adviser.