- Updated July 25, 2015
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By Chad Terhune, July 24, 2015, Los Angeles Times
Anthem Inc. has agreed to acquire rival Cigna Corp. for $54 billion, creating the health insurance industry’s biggest company by enrollment.
The agreement announced Friday caps weeks of frenzied deal making in the healthcare sector.
Aetna Inc. reached a $37-billion deal for Humana Inc. this month. And Woodland Hills insurer Health Net Inc. agreed to be acquired by Medicaid insurer Centene Corp. for $6.8 billion.
The melding of Anthem and Cigna would create a company with about $115 billion in annual revenue and 53 million members. That would make it the largest U.S. health insurer in terms of membership, ahead of industry leader UnitedHealth Group Inc., which has 46 million members.
The Aetna-Humana combination would have about 33 million members, rounding out a dominant big three in the health insurance business.
Antitrust authorities are expected to closely scrutinize this new industry landscape.
“These mergers must be seriously scrutinized to ensure that consumers and healthcare providers are protected from mega-insurer market power abuse,” said Sen. Richard Blumenthal (D-Conn.).
Some health policy experts and consumer advocates have expressed concerns about this increasing consolidation and the prospect of higher premiums.
“The Anthem-Cigna merger sets off numerous regulatory issues for state insurance regulators and the Federal Trade Commission,” said Paula Wade, an analyst at Decision Resources Group in Burlington, Mass.
“Anthem already dominates the employer-based insurance markets in 10 of the 14 states where it owns Blue Cross Blue Shield plans, and the addition of Cigna leaves employers in those states with even less choice than they have now,” she said.
Anthem said it’s confident it can obtain the necessary regulatory approvals and expects the merger to close in the second half of 2016.
“We believe this is the best transaction for both companies,” Joseph Swedish, Anthem’s chief executive, said in a conference call Friday with analysts. “We will create a company that will transform healthcare and benefits for consumers.”
The Affordable Care Act has spurred much of the merger activity.
Health insurers want to bulk up to better take advantage of rising revenues from the health law and the growing privatization of Medicare and Medicaid.
The companies see consolidation as a way to lower costs and cope with limits on their profits under Obamacare.
Anthem will pay $188 a share for Cigna. That’s up from the company’s previous offer of $184 a share that Cigna rejected last month.
The current cash-and-stock deal represents a 38% premium to Cigna’s closing price on May 28, when deal rumors sent many health insurance stocks soaring. The transaction’s total value of $54.2 billion includes debt.
The talks between Anthem and Cigna spilled into public view last month as Anthem expressed frustration with Cigna’s demands. In response, Cigna criticized Anthem’s bid and negotiating tactics.
There were disagreements over the role of Cigna’s chief executive and the split of board seats in the combined company.
In the deal announced Friday, Swedish will serve as chairman and chief executive. Cigna CEO David Cordani will be his No. 2 as president and chief operating officer.
Cordani will also join the Anthem board along with four other Cigna directors.
Anthem is California’s largest for-profit health insurer and also sells Blue Cross policies in 13 other states.
Besides regulators, another hurdle for Anthem is potential opposition from its fellow Blue Cross and Blue Shield plans. Cigna officials raised that issue themselves last month, questioning how Anthem would do business in states where another insurer is the local Blues plan.
The Blue Cross and Blue Shield Assn. has rules governing competition among Blue-branded health plans and grants exclusive rights in certain markets. Anthem is the association’s biggest member.
During a conference call Friday, Swedish expressed confidence that those details can be resolved and won’t impede completion of the merger.
“I am optimistic we will develop a model that works for all of Blue,” he said. “It’s premature to go into any more details.”
Shares of Anthem fell $3.78, or 2.4%, to $151.43 in early trading. Cigna fell $4.39, or 2.8%, to $149.97.