Anthem makes $47-bn offer for rival Cigna

One of the biggest health insurers in the country, Anthem, on Saturday announced an offer to acquire a rival, Cigna, for more than $47 billion in cash and stock.

The move is the latest step toward an expected consolidation among health insurance companies. Last month, Humana, another competitor, was said to be exploring a sale of itself. Driving the push to get bigger has been the Obama administration's health care overhaul, which has bolstered revenues. Yet, at the same time, profit margins have come under pressure in the face of greater pricing transparency and less generous funding of government plans.

By going public with its offer, Anthem is seeking to stir up Cigna's shareholders and force the company back to the negotiating table. Anthem said it had been in talks with Cigna over a potential combination since August. Those talks floundered, Anthem said in a statement, over "Cigna's insistence on uncommon governance demands" - chiefly over the leadership and board structure of a combined company. In particular, Anthem cited the demand that David Cordani, the chief executive of Cigna, lead the combined company.

"We were stunned that the Cigna board continues to insist on a guaranteed chief executive officer position for Cordani over choosing to allow its stockholders to realise the significant premium being offered," Joseph R Swedish, the chief executive of Anthem, wrote in a letter on June 18 to Cigna's chairman that was released on Saturday. Cigna declined to comment.

Anthem's proposed takeover comes as the nation's largest for-profit health insurers are all looking to combine, creating what Ana Gupte, an analyst at Leerink Partners, predicts will become an industry of the Big Three from the current five: Aetna, Anthem, Cigna, Humana and UnitedHealth Group.

UnitedHealth, the industry's largest player, is already well diversified. In addition to providing health insurance directly to consumers as well as through employers, United's Optum business includes companies offering a broad range of health and technology services.

While no one has ruled out United as a possible suitor, the company could run into regulatory hurdles, depending on what it acquired.

Drastic industry changes in recent years are fueling the interest in mergers. Growth from the traditional market of providing health coverage to employees has stalled as fewer companies provide insurance for their workers. As a result, the insurers have steadily moved into the heavily regulated government markets of Medicare and Medicaid as well as the individual market under the Affordable Care Act.

The proposed deals represent the companies' interest in trying to capture as much revenue growth as they can, Gupte recently told investors. The expectation is that the companies can use their larger size to be more efficient.

The proposed combination of Anthem and Cigna would create a much larger entity with $115 billion in revenue.

Anthem operates well-known Blue Cross plans in 14 states and has a strong presence in offering Medicaid plans for low-income individuals.

Cigna is best known for offering plans through employers and selling other kinds of insurance like dental and disability.

Unlike Cigna, however Anthem has also been a major presence on the public insurance marketplaces created by the federal health care law.

Under the offer, Cigna shareholders would receive $184 a share, some 31 per cent of that in Anthem stock and nearly 69 per cent in cash. The offer represents a premium of 18 per cent over Cigna's closing stock prices on Friday and premium of 35.4 per cent over its closing price on May 28, when reports of potential deals among health insurers emerged. The offer gives Cigna an enterprise value of $53.8 billion.

Anthem said it was confident it could secure financing and regulatory approval for a deal.

UBS and the law firm White & Case are advising Anthem.

©2015 The New York Times News Service