Anthem to Buy Cigna for $48.4 Billion After Year of Talks

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Anthem Inc. struck a deal to buy rival Cigna Corp. for $48.4 billion, wrapping up almost a year of contentious negotiations and potentially creating the largest health insurer in the U.S.

Anthem will pay $188 a share in cash and stock for Cigna, based on Anthem’s May 28 closing share price, the Indianapolis-based insurer said Friday in a statement. That’s 22 percent more than Cigna’s closing price on Thursday. The deal combines the second- and fourth-biggest insurers in the U.S., measured by members.

The acquisition extends a wave of consolidation sweeping over the health-care industry, potentially reducing the ranks of the biggest insurers from five to three. Aetna Inc. agreed to buy Humana Inc. for $35 billion earlier this month, a day after Centene Corp. struck a $6.3 billion deal for Health Net Inc. President Barack Obama’s 2010 health-care overhaul is helping drive the mergers, in part by imposing tougher rules and limits on the industry’s profits.

Under the deal announced Friday, Cigna shareholders will receive $103.40 in cash and 0.5152 Anthem shares for each Cigna share. Bloomfield, Connecticut-based Cigna gained less than 1 percent to $154.92 in early trading. Anthem also advanced less than 1 percent.

“It was a reasonably good price to begin with,” Ana Gupte, an analyst at Leerink Partners in New York, said before the announcement. “Shareholders were happy with $184 even. And they were telling Anthem and Cigna to resolve their differences and get the deal done.”

Accretive Deal

The combination will increase adjusted earnings per share by almost 10 percent in the first year, with the accretion more than doubling in the second year, Anthem said. The companies said they plan to cut costs by about $2 billion in the first two years after the deal closes. The transaction, valued at $54.2 billion including debt, is expected to close in the second half of next year, pending regulatory approval.

“We view this deal favorably as the acquisition price appears reasonable considering the significant potential accretion benefits.” Michael Wiederhorn, an analyst at Oppenheimer Holdings Inc., said in a research note.

Cigna had previously rejected bids for as much as $184 from Anthem, with disagreements over who would hold key positions after the merger.

Joseph Swedish, Anthem’s chief executive officer, will run the combined company, according to the statement. David Cordani, Cigna’s 49-year-old CEO, will be president and chief operating officer. Cordani and four independent directors from Cigna’s board will join the nine current members of the Anthem board, the companies said.

Negotiating Leverage

By bulking up, insurers gain more power to negotiate prices with hospitals and doctors, as well as with clients such as employers. Anthem has about 38.5 million medical clients, while Cigna has 14.7 million.

Together, Anthem and Cigna would have about 53 million members, more than UnitedHealth Group Inc., currently the largest U.S. health insurer and the only one of the big five without a merger partner. The deals are certain to attract close scrutiny from antitrust regulators.

The deal also helps Anthem expand in states such as Florida and Texas, Swedish, 64, told investors on a June 22 conference call. Insurers also are competing to capture the 20 million customers who probably will buy coverage through markets created by the Patient Protection and Affordable Care Act next year.

Credit Suisse Group AG and UBS Group AG advised Anthem on the transaction, while Cigna got help from Morgan Stanley. Legal advisers were White & Case LLP for Anthem and Cravath, Swaine & Moore LLP for Cigna.

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