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Cigna and Humana contemplating $60 billion merger, says source

by John R. Fischer, Senior Reporter | December 04, 2023
Business Affairs Insurance
Cigna and Humana are reportedly considering merging in a deal that could be worth over $60 billion.
U.S. health insurers Cigna and Humana are allegedly in talks to merge in a deal that could be worth more than $60 billion and would create a company worth around $140 billion, with greater scale to rival UnitedHealth Group, CVS Health, and other insurers.

The Wall Street Journal, the first to break the news, reported that, according to a source familiar with the matter, the two are contemplating a cash-and-stock deal that could be completed by the end of this year. Cigna declined its request for comment. Humana did not respond.

According to Reuters, Cigna has a market value of $77 billion, and Humana, $59 billion. Both have limited business overlap, mainly within their Medicare plans, with Humana’s being the biggest and most profitable.

Last month, reports emerged that Cigna was looking to divest its Medicare Advantage business due to poor performance caused mainly by limited reimbursement, in another deal that could potentially draw in billions. If true, it would alleviate antitrust regulatory concerns about any deal with Cigna, say financial experts.

"If you are going to try to prepare to be a better match with Humana from a regulatory standpoint, their dropping MA would make it a lot easier," said Craig Garthwaite, a healthcare economist at Northwestern University.

Antitrust concerns were what squashed megadeals in 2017 that would have consolidated most of the U.S. health insurance sector. Cigna, which was planning to acquire Anthem, now owned by Elevance Health, for $48 billion, abandoned its plans after courts rejected the agreement. Following suit, Aetna, now owned by CVS Health, also gave up on acquiring Humana for $37 billion.

Shares for Cigna were down 8.1% following the news due to investor concerns that it could overpay for Humana, which trades at higher valuation multiples, reported Reuters.

Back in February, Humana announced that it would sell its employer-based insurance business to focus primarily on its Medicare Advantage division and other government-backed programs.

This would mean that any deal would combine Cigna and Humana’s pharmacy drug benefit management (PBM) businesses, which may alarm antitrust regulators due to the potential impact it could have on pharmacies and suppliers. Cigna owns Express Scripts, which manages prescription drug plans and has strong commercial insurance benefits, while Humana manages drug benefits for Medicare beneficiaries.

Additionally, the limited business overlap could indicate lower cost and revenue synergies. This, in turn, would put pressure on Cigna to do a better job of running Humana, whose current CEO Bruce Broussard is stepping down in 2024 and will be replaced by Jim Rechtin, who is currently CEO and president of Envision Healthcare, a U.S. provider of physicians.

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