Anthem to Buy Cigna, Creating Largest U.S. Health Insurer by Membership

July 24, 2015

Anthem Inc. said on Friday it would buy Cigna Corp in a deal valued at $54.2 billion, creating the largest U.S. health insurer by membership.

The deal – the biggest ever in the health insurance industry – comes three weeks after Aetna Inc. agreed to buy Humana Inc. for $37 billion and is part of an industry-wide consolidation following the roll-out of the Obama government’s healthcare reform law.

Antitrust authorities are expected to aggressively scrutinize how the combinations will affect competition for Medicare and individual and commercial insurance.

By most measures, U.S. insurance markets are extremely concentrated. That means companies could have trouble selling assets if forced to do so by antitrust regulators.

Anthem and Cigna are two of just four major insurers that administer self-insured plans for major companies. The other two are UnitedHealth Group Inc. and Aetna.

UnitedHealth is currently the biggest U.S. health insurer by membership, while Anthem and Cigna rank No. 2 and No. 4.

“When you go from four to three national players, that creates a significant issue,” said Matthew Cantor of law firm Constantine Cannon LLP.

Anthem said it was confident it would get all necessary regulatory and other approvals.

The combined company would have about 53 million members. UnitedHealth had 45.86 million members as of June 30.

Lower Costs

Anthem said it will pay $103.40 in cash and 0.5152 of its shares for every Cigna share.

The deal is valued at $183.36 per share based on Anthem’s Thursday close of $155.21.

Cigna shares were up about 1 percent at $155.75 in pre-market trading, while Anthem shares were up about 1.5 percent at $157.50.

The equity portion of the offer is valued at $49.11 billion, according to Reuters calculations based on 261.2 million Cigna shares outstanding as of March 31.

Anthem said the offer is valued at $188 per share, based on its unaffected share price as of May 28 before reports that the two companies were in talks.

The company has said the acquisition will help it reduce costs and allow it to negotiate lower prices with doctors and hospitals.

The combined company will be led by Anthem Chief Executive Joseph Swedish. Cigna Chief Executive David Cordani will be president and chief operating officer.

Anthem’s lead financial adviser is UBS Investment Bank. Credit Suisse also served as financial adviser, and White & Case LLP as legal adviser.

Morgan Stanley is Cigna’s financial adviser and Cravath, Swaine & Moore LLP its legal adviser.

(Reporting by Ankur Banerjee in Bengaluru and Diane Bartz in Washington; Editing by Sriraj Kalluvila)

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