FILED BY EXPRESS SCRIPTS HOLDING COMPANY
PURSUANT TO RULE 425 UNDER THE SECURITIES ACT OF 1933
AND DEEMED FILED PURSUANT TO RULE
14a-12
UNDER THE SECURITIES EXCHANGE ACT OF 1934
SUBJECT COMPANY: EXPRESS SCRIPTS HOLDING COMPANY / CIGNA CORPORATION
COMMISSION FILE NO.
001-35490
Express Scripts Holding Company posted the video of the CNBC interview held on March 8, 2018 on its intranet site, a transcript of which follows.
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Client:
Express Scripts
Station:
CNBC
Program:
Squawk on the Street 3/8/18
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David Faber:
Alright, lets get to our story of the morning. You already kind of referenced it, hes sitting
at the end of the desk here.
Jim Cramer:
Im a teaser.
David Faber:
It is the deal of the morning, and perhaps of the week, maybe even of the month- Cigna announcing a deal to acquire the nations
largest pharmacy benefits manager, Express Scripts. 52 billion dollars in cash and stock, its a 31 percent premium to yesterdays close, though you do see the overall value is coming down, as Cignas stock is declining.
Lets speak with Cigna CEO David Cordani, joins us here at Post 9, of course a frequent guest quarter to quarter, but very happy to have you here on this
news-making
day, David, thank you.
David Cordani:
Good to be with you this morning, thank you.
David Faber:
One would expect that since your deal with Anthem fell apart some time back, that so many people in your broader healthcare industry have
been trying to figure out what to do, that you would have had a lot of different things to think about, whether as a buyer or seller. Why is this the transaction that is best for your shareholders?
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David Cordani:
Yeah, I appreciate the way you framed it, and I think the important part is we had a lot of
choices. Choices are enabled to us by a couple things- first, the base core operations of the franchise are working quite well. We grew our top line double digit last year, we grew our bottom line 25 percent last year, and were stepping
into 2018 again growing high single digit top line, and were growing our bottom line EPS
mid-teens.
So base trend, two
for-growth
platforms that we have give us
strategic optionality. So we took our time, we evaluated the marketplace, and we couldnt be more excited about the move we took to further accelerate our strategy, which is all around improving affordability and personalization for our
customers and clients, driving more choice, greater alignment with the healthcare professionals, and therefore more value for everybody. So we took our time, we had choices, and were excited about the one we pursued.
David Faber:
Now youre talking here about expected annual revenue growth, and between 6 and 8 percent over a long period of time here, from
pro forma 17 up until 2021. What gives you the confidence that you can achieve those kinds of pretty significant numbers?
David Cordani:
First,
Ill start from the foundation again. If you look at Cigna over the last 8 years, we delivered on all of our revenue growth expectations, which are high single digit over any elongated period of time. Thats driven by strong retention of
client and customers, expanding relationships further, and then adding new business relationships. Express Scripts has outstanding client retention results, and as we bring the two companies together were going to stand up an additional
services vertical built off of both of our sets of capabilities for employers, health plans, and governmental agencies. So strong foundation, proven track record of retention because we deliver, and a new distribution and growth chassis.
Jim Cramer:
David, I need to know, in those discussions, did it ever come
up-
Bezos, ever come up Dimon, ever
come up Warren Buffett? That maybe its the right time to do something, get together, because this could be a threat to your own business?
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David Cordani:
Yeah, we see it more as an opportunity. So as the narrative comes out with the filing of
the [inaudible], youll see the conversation started some time ago, I think back in the fourth quarter. Our view is that the current marketplace is not sustainable. The market demands more affordability, the market demands more personalization,
the market demands more value. And whether its the look of the new JV between the three organizations you identified, or clients and customers wanting more value, well be
well-positioned.
The
franchise today delivered the best medical costs in the industry in 2017, half the industry average. And Express Scripts delivered a medical cost for their customers and clients that was industry leading. So we see that move with Amazon, JP Morgan,
and Berkshire, as creating another opportunity to be the service provider of choice, for whether its that joint venture of clients, health plans, or governmental agencies going forward.
David Faber:
But in terms of that JV, viewers keep hearing about this sort of nondescript threat that it could bring to the industry, but its
ill-defined.
And I wonder if youve defined it, if you know or if you have an opinion of what theyre capable of, and if deals like this one are an attempt to head that off.
David Cordani:
So I think we have to wait and see what theyre going to stand up. We know the organizations, as you might expect, have had
conversations- multiple- with the leadership of the organizations and teams there. We serve part of those organizations, and we proudly serve part of those organizations. But I think its symbolic with, in that case, three respected, global
leaders saying we can do better, we need to do better, our employees and society deserves better. This combination accelerates our movements and delivers more value. I think thats the basic thing, so we want to drive change. Were not
trying to protect an insurance franchise. Weve been driving service expansion, and its about keeping people healthy, improving clinical quality for when people consume care, and as a result helping employers have healthy, productive,
present employees, and therefore healthier businesses. Thats what we do everyday, so we see that as an opportunity.
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David Faber:
Youve been down the consolidation road before. I referenced Anthem earlier, that was
many years ago, then a very long review. But during the period of time that you guys were dealing with that, I would term it there was something of a culture clash. Lets at least say you didnt get along particularly well. What gives you
the confidence that this time its going to be different with Express Scripts?
David Cordani:
Yeah, everybody has opportunity to learn,
number one. So we talk about, as a corporation being a learning organization, every person, the company, we learned from yesterday, get a little bit better tomorrow personally, professionally. You might expect, we spend a lot of time making sure the
culture is aligned, so as we step back and look at the cultures, theyre two service-based companies. Neither company is entrenched in insurance. Secondly, very customer-focused. Theyll talk about patients and customers, we talk about
customers. On our call we had, Tim rattled off NPS scores. Most people cant do that. We know our NPS scores, we manage them globally, and we have for over seven years. They understand the customer, they understand partnering. Theyre
oriented around transparency, theyre very commercial-oriented. Also, were quite community-oriented, and to reinforce that as part of this announcement, were putting another 200 million dollars into our foundation for health
and social services. So we spent time to make sure we understood the cultures. Were going to spend the time putting the companies together, and were going to build on the strength of both companies. We couldnt be more excited about
it.
David Faber:
Antitrust review.
CVS-Aetna,
also may be reviewed in parallel, that happens sometimes. It
happened with Anthem-Cigna and Humana-Aetna, both of which were turned down. Do you have any concerns on the antitrust front? It wouldnt appear to be a deal that would give antitrust regulators particular concern, but who knows in this
landscape.
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David Cordani:
Sure, sure. Obviously we understand the importance of that, number one, and we look forward
to engaging with regulators, state and federal, immediately upon this announcement.
David Faber:
Did you get any feedback? Sometimes people sort
of preview something, was there any of that
David Cordani:
We didnt go through a formal preview. This [inaudible] have quite quiet
[sic]. Were highly confident with the multiple reviews that this gets regulatory approval. Theres de minimis overlap when you look at the franchises based on traditional services and programs. We are committed to transparency and open
architected solutions, so were quite confident well get the regulatory approval and well seek to close the transaction by the end of 2018.
Jim Cramer:
I want to speak about the accretion here. It is incredible, after the spat- well, more than a spat, the litigation with Anthem- these guys
came with just a massive, massive
cost-cut
program. Are you just not taking advantage of the fact that theyre about to kick in? And the accretion comes because Express Scripts was just a banshee about
cutting costs after this Anthem deal.
David Cordani:
Yeah, I think about, lets step back and frame the accretion story. Theres a
social story, theres a consumer story, theres an employer story, theres a shareholder story. The shareholder story is year one, financially accretive, double digit- in fact, teens, accretion in year one. Thats even excluding
the transitioning client. If you add the transitioning client, which will be on the books in 2019, theres quantum accretion from that standpoint. That will create free cashflow to deleverage the franchise very rapidly. Secondly, its
sustainable. And I think, third, very important, we have been very clear- the financial synergies that were counting on from a shareholders standpoint, our administrative synergies in nature, the medical cost and further pharmacy cost
synergies flow to
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customers and clients largely. Were committed to transparency, were committed to improving
affordability. So its a compelling shareholder story because were creating value for clients and customers. Well flow significant step function improvement in affordability to our clients and customers and new clients and
customers, and have an outstanding return for our shareholders. And lastly, as I noted, we will take the companys leverage up to 49 percent, and we will deleverage back to our strategic range in the 30s in 18 to 24 months, all while still
leaving some capital available for deployment during that 18 to 24 months for further
bolt-on
acquisition to share repurchase.
Carl Quintanilla:
Does a deal of this size preclude you from other deals of comparable size or partnerships like weve seen in the past few
months?
David Cordani:
So I would say deals of comparable size, we would not pursue a deal of comparable size. As I indicated, additional
bolt-ons,
weve created capital flexibility for that purpose, but were focused on this. I appreciate the way you asked it in terms of partnership. Were a partnership-oriented company. We have joint
ventures around the world where we serve customers and clients in China, in India, in Turkey, through joint ventures. We have 500 collaborative accountable care relationships in the United States with physician groups and hospitals. Some of them
approach joint venture configurations and some may lapse into joint venture configurations. We love to partner. We love to get the best of both organizations to deliver value for our customers and clients, and over in both dependency of this
transaction and post, you should see more partnerships amass for us with like-minded organizations that want to create value for customers and clients.
David Faber:
David, youre making the case, of course, as to why this is a benefit to shareholders. They dont seem to be listening this
morning, the stock is down 8 percent. Is that a concern at all for you at this point, the reaction early on here to this deal?
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David Cordani:
Not focused on todays trading, obviously. We think this is a high value creation for
our shareholders. Not lost on us, its two different companies, two different shareholder profiles, in some way theres overlap. Expect some relocation of dollars, where companies who bought Cigna for Cignas value proposition might
seek to take some money off the table. I would note, over the last
6-7
years weve delivered about 35 percent TSR CAGR. Not for a year- over the last
6-7
years
weve delivered a 35 percent TSR CAGR.
David Faber:
Thats a big number.
David Cordani:
And what our shareholders do know is we have a track record of delivering on our promises. Our
top-line
promises, our bottom line promises, because we have a track record of delivering on our customer and client partner promises, so were confident were going to build a lot of shareholder
value here.
Carl Quintanilla:
When you hear tough talk from Scott Gottlieb, or out of HHS among the industry, what do you think they have in mind?
David Cordani:
We look forward to engaging directly in those conversations, so I dont want to interject indirectly. But if I step back,
whether its federal regulators, state regulators, employers, new joint ventures like we talked about, and Amazon, everybodys looking for more value. Everybodys looking for more value, more personalization, what works for an
individual, and more transparency. Thats what we want as well. So youll see continued drive, and we do so in partnership with our healthcare professional partners. Were open architected, we dont sell proprietary technology,
were not an ownership-based model, we embrace digital capabilities. 85 percent of all Cignas business today in the United States in the commercial space is ASO or self-funded. Its built on transparency, its built on
alignment. So I think its reinforcing that everybody recognizes were not sustainable today as a society. We need to improve health, we need to improve affordability, and we need to drive it rapidly.
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Carl Quintanilla:
As far as you know, have you or other leaders of healthcare companies had an extended
conversation with Buffett or Bezos or Dimon?
David Cordani:
I can speak to me personally. I spoke to at least 2 of those 3 individuals over the
recent past life.
Carl Quintanilla:
About?
David Cordani:
Their aspirations and ours.
Carl
Quintanilla:
So you think you do understand it maybe?
David Cordani:
Were a learning organization, were a very customer and
commercial-oriented organization, and we want to drive change for the betterment of our customers and clients with our healthcare partners, and ultimately for the benefit of our employer clients and health plan clients. So we view that our job is to
make our employer clients businesses better. You do it by having healthy, productive, present employees in an affordable, predictable way. Youve got to engage with them, and the best way you do it is to align with the employer. So we
have ongoing conversations.
Jim Cramer:
But are you a community organization? When Cigna left Philadelphia, you decimated Philadelphia. It was one
of the biggest employers. Lots of people worked for Cigna. Express Scripts is in St. Louis, another town that is hurting, really hurting for big companies, is that it for St. Louis? Is that what youre going to do? Is that company moving to
Connecticut?
David Cordani:
So first, thanks for addressing that topic. We have over 1,000 co-workers in Philadelphia proper today. We have about
6,000 colleagues that work in Pennsylvania proper today. If you look at our recent track record, so lets talk about the past. In the last decade, we have two large acquisitions in the United States, not of this scale. One was Denver-based, one
was Nashville-based. Today the employee population in Denver is greater than the day of the acquisition. Today the employee population in Nashville is greater than the
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population when we started. We have a track record of securing growth platforms and building on those. This
service-based business will be driven out of St. Louis. I will personally be in St. Louis tonight. I will not let the first day eclipse without spending time with the leadership in St. Louis face to face, and we will make a significant commitment to
that community and the other communities that legacy Express Scripts serves in, including our employment commitment. We want to grow the business. Growth creates more opportunity, so we understand that community responsibility. And lastly, as I
referenced before, its post-symbolic and substantive. We step forward with another 200 million dollar commitment to a foundation. That goes to community health and community social programs, and will be directed as it always has in
communities were deepest in, and we understand the communities that legacy Express Scripts is deepest in, starting with St. Louis.
David Faber:
David, finally, given the stock price move down, there are some people who say the value of the retained synergies here is noticeably below the premium youre paying, and that theres an outsized reliance on unquantified platform
synergies. How would you respond to those?
David Cordani:
Yeah, a really important point, so lets break it down very simply. The accretion
numbers we talked about are based upon see, feel, touch, know expense administrative synergies that weve diligence [sic]. All the medical cost synergies and pharmacy synergies flow to employers and clients. People dont position
statements like that, we do. Growth synergies are not in our numbers, so lets be really clear. The growth synergies that are potential for this business are not in the accretion numbers weve talked about. What weve promised to our
shareholders are based upon the baseline operations of the companies, the expense synergies that we know we will secure responsibly over a four-year period of time and generate accretion; secondly, the rapid deleveraging massively reduces debt
service costs over only an
18-24
month period of time. All the medical and pharmacy synergies go to clients and customers, and the growth synergies are additives not in any of the projected numbers we
indicated.
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When you put it all together, we recently increased our EPS outlook for 2021, literally months ago, to 18 dollars per share from 16 dollars a share. We just took it up again to 20 to 21 dollars.
That doesnt depend upon additional new business model growth synergies, thats all to come. We like to over deliver relative to our promises.
David Faber:
David, thank you. We appreciate you being with us today.
David Cordani:
Its good to be with you today, thanks for the time.
David Faber:
David Cordani, CEO of Cigna. By the way, youre going to see him again in a few weeks. On March 28th, CNBCs going to host our
first ever healthcare conference. Its called Healthy Returns, and we will be featuring top government officials, CEOs, innovators, investors, including Mr. Cordani. Check it out at cnbc.com/healthyreturns for tickets and
information.
Carl Quintanilla:
Reflections on that, Jim?
Jim Cramer:
Look, I think this is, these companies have to combine. They have to combine, theyre so competitive. Its one after another
after another. And I think the fact that its accretive and the stock is down, I think its a buy. Its too accretive for me to think that down 20, down 19...
David Faber:
35 percent TSR over the last, what was it, 7 years? A long period of time, thats pretty serious stuff.
Jim Cramer:
And their cost, their MLR, so to speak, has been vastly superior. I would buy Cigna right here. It just seems that this is the discount
that you want to just climb into.
David Faber:
Ive got you down for 176...
Jim Cramer:
Yes, you put me down 176.
Carl
Quintanilla:
50,000. Take the top off, yeah.
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Jim Cramer:
I think Cigna is a buy right here. There we go, Im saying it.
David Faber:
That was good, good time with him. When we come back this morning, the Presidents game plan for energy independence. Were
going to talk to Energy Secretary Rick Perry. As you see some gains here at the open, Dow is up 100. Were back in a minute.
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* * *
FORWARD LOOKING STATEMENTS
Cautionary Notes
on Forward Looking Statements
Information included or incorporated by reference in this communication, and information which may be contained in other
filings with the Securities and Exchange Commission (the SEC) and press releases or other public statements, contains or may contain forward-looking statements. These forward-looking statements include, among other things, statements of
plans, objectives, expectations (financial or otherwise) or intentions.
Forward-looking statements, as they relate to Express Scripts Holding Company or
Cigna Corporation, the management of either such company or the transaction, involve risks and uncertainties. Actual results may differ significantly from those projected or suggested in any forward-looking statements. Express Scripts Holding
Company and Cigna Corporation do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated
events. Any number of factors could cause actual results to differ materially from those contemplated by any forward-looking statements, including, but not limited to, the risks associated with the following:
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the inability of Express Scripts Holding Company and Cigna Corporation to obtain stockholder or regulatory approvals required for the merger or the requirement to accept conditions that could reduce the anticipated
benefits of the merger as a condition to obtaining regulatory approvals;
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a longer than anticipated time necessary to consummate the proposed merger;
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problems regarding the successful integration of the businesses of Express Scripts Holding Company and Cigna Corporation;
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unexpected costs regarding the proposed merger;
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diversion of managements attention from ongoing business operations and opportunities;
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potential litigation associated with the proposed merger;
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the ability to retain key personnel;
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the availability of financing;
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effects on the businesses as a result of uncertainty surrounding the proposed merger; and
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the industry may be subject to future risks that are described in SEC reports filed by Express Scripts Holding Company and Cigna Corporation.
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You should carefully consider these and other relevant factors, including those risk factors in this communication and other risks and uncertainties that
affect the businesses of Express Scripts Holding Company and Cigna Corporation described in their respective filings with the SEC, when reviewing any forward-looking statement. These factors are noted for investors as permitted under the Private
Securities Litigation Reform Act of 1995. Investors should understand it is impossible to predict or identify all such factors or risks. As such, you should not consider either foregoing lists, or the risks identified in SEC filings, to be a
complete discussion of all potential risks or uncertainties.
IMPORTANT INFORMATION ABOUT THE TRANSACTION AND WHERE TO FIND IT
This communication does not constitute an offer to buy or solicitation of an offer to sell any securities. In connection with the proposed transaction,
Halfmoon Parent, Inc. (Holdco) intends to file with the SEC a registration statement on Form
S-4
that will include a joint proxy statement of Cigna Corporation and Express Scripts Holding Company
that also constitutes a prospectus of Holdco. Cigna Corporation and Express Scripts Holding Company also plan to file other relevant documents with the SEC regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE
JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. You may obtain a free copy of the joint proxy
statement/prospectus (if and when it becomes available) and other relevant documents filed by Holdco, Cigna Corporation and Express Scripts Holding Company with the SEC at the SECs website at www.sec.gov. Copies of documents filed with the SEC
by Cigna Corporation will be available free of charge on Cigna Corporations website at www.cigna.com or by contacting Cigna Corporations Investor Relations Department at (215)
761-4198.
Copies of
documents filed with the SEC by Express Scripts Holding Company will be available free of charge on Express Scripts Holding Companys website at www.express-scripts.com or by contacting Express Scripts Holding Companys Investor Relations
Department at (314)
810-3115.
PARTICIPANTS IN THE SOLICITATION
Cigna Corporation and Express Scripts Holding Company and their respective directors and executive officers may be deemed to be participants in the
solicitation of proxies in respect of the proposed transaction under the rules of the SEC. Investors may obtain information regarding the names, affiliations and interests of directors and executive officers of Cigna Corporation (and, in some
instances, Holdco) in Cigna Corporations Annual Report on Form
10-K
for the year ended December 31, 2017, which was filed with the SEC on February 28, 2018, and its preliminary proxy statement
for its 2018 Annual Meeting, which was filed with the SEC on March 2, 2018. Investors may obtain information regarding the names, affiliations and interests of Express Scripts Holding Companys directors and executive officers in Express
Scripts Holding Companys Annual Report on Form
10-K
for the year ended December 31, 2017, which was filed with the SEC on February 27, 2018, and its proxy statement for its 2017 Annual Meeting,
which was filed with the SEC on March 17, 2017. You may obtain free copies of these documents at the SECs website at www.sec.gov, at Cigna Corporations website at www.cigna.com or by contacting Cigna Corporations Investor
Relations Department at (215)
761-4198.
Copies of documents filed with the SEC by Express Scripts Holding Company will be available free of charge on Express Scripts Holding Companys website at
www.express-scripts.com or by contacting Express Scripts Holding Companys Investor Relations Department at (314)
810-3115.
Other information regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC regarding the proposed transaction if and when
they become available. Investors should read the joint proxy statement/prospectus carefully and in its entirety when it becomes available before making any voting or investment decisions.
NO OFFER OR SOLICITATION
This communication is
for informational purposes only and not intended to and does not constitute an offer to subscribe for, buy or sell, the solicitation of an offer to subscribe for, buy or sell or an invitation to subscribe for, buy or sell any securities or the
solicitation of any vote or approval in any jurisdiction pursuant to or in connection with the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law.
No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.
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