Health care company Anthem to acquire rival Cigna for $48.4 billion

HARTFORD, Conn. – Cigna Corp. has agreed to be acquired by Anthem Inc. for $48.4 billion plus debt, forming the nation’s largest health insurer with more than 50 million customers.

In a joint announcement early Friday, the companies said Anthem will pay $188 a share, a 37 percent premium over Cigna’s price at the end of May, before merger rumors surfaced.

Anthem CEO Joseph Swedish would be the combined company’s CEO and David M. Cordani, the Cigna chief, would be president and chief operating officer.

The deal, part of a wave of consolidations in health care that includes the pending merger of Aetna and Humana, announced July 3, would end independence for Cigna, which is based in the Hartford suburb of Bloomfield and formed in 1982 with the merger of Connecticut General and the Insurance Company of North America.

The combined companies will take the Anthem name and be headquartered in Indianapolis, the home of Anthem, a Cigna spokesman said Friday.

Cost savings as a result of the deal would total $2 billion, nearly 2 percent of the combined companies’ revenues – raising questions about possible job reductions.

Early market reaction to the announcement was negative, as Cigna shares were down by 3.5 percent to just over $149, despite the offer. Anthem shares were down by 3 percent. The declines could indicate investor skepticism that the deal will win approval.

The cash-and-stock deal, valued at $54.2 billion including debt, is expected to close in the second half of 2016 and will require shareholder consent in addition to endorsement by state and federal regulators. Anthem said it is “confident in its ability” to secure those approvals for a combination that is expected to draw close scrutiny on antitrust concerns.

“We believe that this transaction will allow us to enhance our competitive position and be better positioned to apply the insights and access of a broad network and dedicated local presence to the health care challenges of the increasingly diverse markets, membership, and communities we serve,” Swedish said in a release.

Cigna shareholders would receive $103.40 in cash and the rest in Anthem stock.

Cordani’s position in the company was among the issues in a courting process that was extraordinary because of a public volley of tense letters between him and Swedish. In negotiations, Cordani, 49, had initially insisted that he be the CEO, or that he be promised the job on the retirement of Swedish, who is 64, according to a June 20 letter from Swedish to the Cigna board, which Anthem released that day.

Cordani, in the announcement Friday, said both companies share “proud histories and an even brighter future,” combining the complementary strengths of each company.

Three giant, national companies would dominate if the Anthem-Cigna deal and the Aetna acquisition of Humana both gain approvals and happen. Anthem, Aetna and UnitedHealthcare would, between them, manage or insure the medical coverage of a majority of Americans.

The wave of consolidations among health insurers and hospitals is driven, many people say, by the new economics of Obamacare – in which companies will be rewarded by efficient management of large populations. Whether that leads to lower prices or better health care remains to be seen, as many experts remain skeptical.

On July 3, Hartford-based Aetna Inc. announced it would acquire rival Humana, based in Louisville, Ky., in a $37 billion deal. That intensified pressure on Cigna and other big health insurers to pair off in order to cut costs, as Obamacare has triggered a race for new customers.

Both deals will draw close scrutiny over antitrust concerns and there has been some speculation that the U.S. Department of Justice will examine the Aetna-Humana combination and a Cigna-Anthem deal together – although Aetna executives said in discussing their merger that they did not believe that would happen.

Cigna appeals to Anthem because of its strong national accounts business, which is insurance offered to large employers; its stock of coverage from midsize businesses; and its specialty programs such as dental, vision and behavioral health. Cigna also was attractive for its wellness programs, Medicare business and its international business.