One of the biggest health insurers in the US, Anthem, on Saturday announced an offer to acquire a rival, Cigna, for more than US$47 billion in cash and stock.
The move is the latest step toward an expected consolidation among health insurance companies. Last month, Humana, another competitor, was said to be exploring a sale of itself.
Driving the push to get bigger has been US President Barack Obama administration’s health care overhaul, which has bolstered revenues. Yet, at the same time, profit margins have come under pressure in the face of greater pricing transparency and less generous funding of government plans.
By going public with its offer, Anthem is seeking to stir up Cigna’s shareholders and force the company back to the negotiating table.
Anthem’s proposed takeover comes as the nation’s largest for-profit health insurers are all looking to combine, creating what Ana Gupte, an analyst at Leerink Partners, predicts will become an industry of the Big Three from the current five: Aetna, Anthem, Cigna, Humana and UnitedHealth Group.
UnitedHealth, the industry’s largest player, is already well diversified. In addition to providing health insurance directly to consumers as well as through employers, United’s Optum business includes companies offering a broad range of health and technology services.
While no one has ruled out United as a possible suitor, the company could run into regulatory hurdles, depending on what it acquired.
Drastic industry changes in recent years are fueling the interest in mergers. Growth from the traditional market of providing health coverage to employees has stalled as fewer companies provide insurance for their workers.
As a result, the insurers have steadily moved into the heavily regulated government markets of Medicare and Medicaid as well as the individual market under the Affordable Care Act.
The proposed deals represent the companies’ interest in trying to capture as much revenue growth as they can, Gupte recently told investors. The expectation is that the companies can use their larger size to be more efficient.
The proposed combination of Anthem and Cigna would create a much larger entity with US$115 billion in revenue.
Anthem operates well-known Blue Cross plans in 14 states and has a strong presence in offering Medicaid plans for low-income individuals.
Cigna is best known for offering plans through employers and selling other kinds of insurance like dental and disability.
However, unlike Cigna, Anthem has also been a major presence on the US’ public insurance marketplaces created by the federal health care law.
Under the offer, Cigna shareholders would receive US$184 a share, about 31 percent of that in Anthem stock and nearly 69 percent in cash. The offer represents a premium of 18 percent over Cigna’s closing stock price on Friday and a premium of 35.4 percent over its closing price on May 28, when reports of potential deals among health insurers emerged.
The offer gives Cigna an enterprise value of US$53.8 billion.
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