Cigna on A.M. Best Radar After Acquisition Bid by Anthem - Analyst Blog
Following Anthem Inc.’s ANTM proposal to a acquire Cigna Corp. CI, rating agency A.M. Best undertook a rating action on Cigna .
A.M. Best put under review, with developing implications, the financial strength rating (FSR) of A and the issuer credit ratings (ICR) of “a” of the key life/health subsidiaries, the medical health maintenance organizations (HMO) and dental HMO subsidiaries of Cigna. The company’s ICR of "bbb-"; existing debt ratings; FSRs of A- (Excellent) and the ICRs of “a-” of four Cigna supplemental benefit companies and six Cigna HealthSpring companies also met with the same fate.
The under review status reflects the ambiguity surrounding the Anthem proposal of acquiring Cigna for $184 share a piece, which was rebuffed. Cigna cited that their union would not be in the best interest of its shareholders. Anthem is nevertheless continuing its pursuit by creating pressure on its board members.
The Anthem-Cigna union will be funded via a mix of cash and issuance of debt, which might zoom up the leverage ratio to near about 50%. Since the deal will involve two big players of the industry, it will attract significant scrutiny by the regulators in more than one jurisdiction which will extend the clearance time to the end of 2016.
A.M. Best anticipates that Cigna's ratings will likely remain under review until Anthem’s proposal gains clarity.
A.M. Best gives its “under review” outlook following an event-driven case. The rating outlook may change in the near term (six months).
We believe Cigna will receive a positive rating action if it gives its consent to the proposal since the deal would be a net positive to both entities. Their complementary businesses are likely to result in huge diversification benefits.
Cigna currently carries a Zacks Rank # 3 (Hold). Other better ranked players worth considering are James River Group Holdings, Ltd. JRVR and Prudential Financial, Inc. PRU. Both these stocks sport a Zacks Rank # 2 (Buy).
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