Anthem Acquires Cigna in $54 Billion Insurance Merger: 7 Key Takeaways - Stocks in the News
Announced Friday, health care company Anthem Inc (ANTM) will buy fellow insurer Cigna Corp (CI) in a deal that reaches $54 billion, a move that follows in the footsteps of Aetna Inc’s (AET) purchase of Humana Inc (HUM) for $37 billion. This deal further focuses the United States health care market, an area now with only a handful of big players. Here’s a look at what investors should know about the latest high-profile insurance acquisition.
1. What are the terms of the deal?
Including the assumption of debt, the deal is worth $54.2 billion. Anthem will pay $103.40 a share in cash and 0.5152 shares in Anthem stock, which comes out to $188 a share, to Cigna shareholders for each of their shares. This payout represents a 38.4% premium to Cigna’s May 28, 2015 closing price.
2. What is the new company’s financial outlook?
The combined business has an estimated revenue of approximately $115 billion, and will serve upwards of 53 million people with medical insurance coverage. According to Anthem, the new company expects to achieve nearly $2 billion in yearly cost savings due to the merger; they also said one-time charge of $600 million over a two year period.
3. What will management look like?
The Anthem Board of Directors will expand to 14 members, including David M. Cordani, who was Cigna’s president and chief executive, and four independent directors from Cigna. Cordani will now serve as the new company’s president and chief operating officer, and Anthem’s Joseph Swedish will be chairman and chief executive officer.
4. When will the deal close?
The deal is expected to close in the second half of 2016. Approval is still pending from Cigna’s shareholders, and Anthem’s shareholders must still agree to the proposed issuing of shares.
5. Who were the deal’s advisors?
Anthem was advised by UBS Financial Services and Credit Suisse Group, as well as law firm White & Case LLP. Cigna received advisement from Morgan Stanley and law firm Cravath, Swaine & Moore LLP.
6. What will shareholder ownership look like?
After the deal is complete, shareholders of Anthem will own 67% of the new company, and shareholders of Cigna will own the remaining 33%.
7. What are Anthem and Cigna’s areas of expertise?
Based in Indianapolis, Anthem specializes in individual and small business worker insurance coverage, in addition to an increasing government presence, including Medicaid, Medicare, and coverage for federal employees; Anthem currently holds the spot as the second-largest health insurer in the U.S. Cigna is based on Bloomfield, Connecticut, and is best known for their employer-sponsored health care plans, as well as other kinds of insurance like dental, disability, and life coverage.
In response to the merger, ANTM stock is down just over 2% in afternoon trading, resting at $152 a share. They currently sit at a #1 (Strong Buy) on the Zacks Rank. CI stock is down as well today, dropping just over 5% since market opening. The company holds a #2 (Buy) spot on the Zacks. Rank.
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ANTHEM INC (ANTM): Free Stock Analysis Report
CIGNA CORP (CI): Free Stock Analysis Report
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HUMANA INC NEW (HUM): Free Stock Analysis Report
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