Anthem, Inc. ANTM recently announced that it has increased its bid for the takeover of Cigna Corporation CI to $184 per share in cash and stock. This now takes the takeover bid to a total proposed consideration of $54 billion. However, per sources, Cigna rejected the offer citing the bid to be “inadequate” and not in the best interests of its shareholders.
Anthem is of the opinion that the combination of the entities should confer increased scale of operations and thus, form a premiere health benefits company, which would cater extensively to consumer requirements. Post acquisition, the combined entity would have annual revenues of more than $115 billion, based on the outlook for 2015 for both the companies.
Anthem expects the deal to be a meaningful one as it would be accretive to operating earnings per share (EPS) and generate cost synergies. The adjusted EPS accretion for the first year is projected to be greater than 10%, which is expected to double in the second year. Thus, in its desperate efforts to acquire Cigna, Anthem has made four bids, the final one being the $54 billion proposal.
However, per sources, Cigna – the nation’s fifth largest insurer – has expressed discontent with Anthem’s ceaseless offers and stated that the latter had publicized its private negotiations a day earlier than intended.
Moreover, Cigna is unhappy with Anthem’s failure to deal with the consequences of the massive data breach that the latter faced earlier this year. Cigna is also dissatisfied with Anthem’s chief executive officer (CEO) assuming four vital roles that include Chairman of the Board, CEO, President, as well as Head of Integration.
Additionally, Cigna remains concerned about Anthem’s lack of growth strategy, hurdles associated with the membership in the Blue Cross Blue Shield Association and the antitrust actions related to it. For all the above reasons, the company did not consider the deal to be in the best interests of its shareholders.
In order to capitalize on the benefits of the Affordable Care Act and optimize profits, health insurers are focusing on increasing their operational scale. This will help them to win better terms from medical providers. Anthem’s proposed takeover also reflects this strategy. However, the rejection by Cigna and new governance demands has been pointed to be “unreasonable” by the board of Anthem and hence raise caution regarding the success of a mutual agreement. Nevertheless, if management of Cigna agrees upon the deal, Anthem expects to reach a negotiation by the end of Jun 2015.
Among other big names in the health insurance space, Aetna Inc. AET is mulling over a similar deal. The third-largest insurer in the nation has put forward a proposal to acquire one of the leaders in the Medicare Advantage plans space – Humana Inc. HUM. According to sources, if realized, the above deals will lead to the reduction of top names in the health insurance space from five to three, thereby shrinking options for consumers. Nevertheless, such initiatives would reduce competition and enhance operational efficiencies and hence, lower costs for consumers.
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