By Dana Mattioli And Anna Wilde Mathews
Health insurers Anthem Inc. and Cigna Corp. are in talks to
combine after Cigna last month spurned a $47.5 billion takeover
from Anthem, according to a person familiar with the matter.
Representatives of the companies met Friday and Tuesday to
discuss a potential tie-up, the person said. A deal could be
reached in coming weeks, the person said, though there is no
guarantee the latest round of talks will result in a tie-up.
Anthem has been trying to combine with Cigna for nearly a year,
but the two companies have struggled to agree on price and other
terms, including who would run the combined company. Last month, in
an attempt to woo Cigna shareholders, Anthem made public its most
recent offer of $184 a share.
The talks come amid a flurry of discussions among the top five
health insurers aimed at striking deals that will enable them to be
more competitive in a health-care landscape dramatically altered by
the Affordable Care Act and other developments.
Even amid the Anthem talks, Cigna continues to examine a
potential purchase of Louisville, Ky.-based Humana Inc., people
familiar with the matter said. In that potential tie-up, it is
vying with Aetna Inc., which has made a takeover proposal for
Humana. Aetna, meanwhile, has been stalked by UnitedHealth Group
Inc., the largest health insurer, according to people familiar with
the matter.
The talks come as a smaller managed-care company, Centene Corp.
agreed to buy Health Net Inc. for around $6.3 billion in cash and
stock--unexpectedly scoring the industry's first deal after weeks
of circling among bigger health insurers.
The combination gives Centene, based in St. Louis and largely
focused on Medicaid, a major presence in California, Health Net's
home turf. It also appears to remove from the merger equation two
smaller players that had long been seen as potential acquisition
targets for the biggest companies.
As for Anthem and Cigna, the two companies have clashed--among
other things--over the role Cigna Chief Executive David Cordani
would play in a combined company. He wants to be CEO, if not
immediately then after some time, which Anthem refuses to
guarantee.
Anthem, based in Indianapolis and until last year known as
WellPoint, is a huge player in the individual and small-group
markets in the 14 states where it holds the rights to be the Blue
Cross and Blue Shield insurer. It also has a strong role among
national employers.
Cigna focuses closely on self-insured commercial business and
has a significant and growing position overseas. Combining the two
would create a big competitor in the commercial health-insurance
business, with strong positions among individual, small-business
and big-employer clients.
At Friday's meeting, Anthem and Cigna discussed potential
synergies if the two companies were to combine, said one of the
people. Another issue discussed, the person said, was Anthem's role
as a Blue Cross and Blue Shield insurer, an issue Cigna also
highlighted in a letter to Anthem that it made public. The Blue
Cross and Blue Shield plans hold geographic rights to use the Blue
brand only in a particular area, and they also agree to certain
limits on their non-Blue business.
It is unclear how Anthem would manage the legacy Cigna business
in states where another insurer is the local Blue. In its letter,
Anthem said it was "confident in its ability to obtain regulatory
approvals" and this "includes matters related to the Blue Cross
Blue Shield Association."
Cigna countered by highlighting potential complications arising
from Anthem's affiliation with the Blue system, including
litigation against it.
Shares of Cigna, which is based in Bloomfield, Conn., closed
Wednesday at $162 each. The company's market capitalization is
around $42.6 billion, just below Anthem's market value of $43.6
billion.
Thursday, shares of Cigna rose 0.2% in midday trading, while
Anthem shares slipped 1.5%.
Centene, meanwhile, said it expected significant synergies from
its deal for Health Net, amounting to $150 million a year by the
second year. Centene said the combined company would have pro forma
revenue of around $37 billion for this year. The deal values Health
Net shares at around $78.57, a 21% premium over Health Net shares'
closing price on July 1.
For Centene, the deal brings a major presence in California's
Medicaid, the nation's largest version of the program for
lower-income Americans, where it had only a limited role before. It
also lands Centene in the state's program to manage beneficiaries
who qualify for both Medicaid and Medicare, known as dual
eligibles. These populations have been seen as a huge opportunity
for managed-care companies but also a big challenge, because of
their complexity and often significant health needs. In California
and other places, some companies have struggled with dual
beneficiaries choosing to opt-out of their programs.
Health Net's California Medicaid business is particularly
low-risk, because of a legal settlement with the state that
guarantees a margin of 3.255%, said Sarah James, an analyst with
Wedbush Securities. The two companies may potentially benefit from
jumping sooner than other insurers considering combinations, she
said, as Justice Department regulators appear to be signaling they
will likely review an expected spate of industry deals in a way
that considers their combined impact on competition.
"There could be an advantage to being at the earlier end of it,"
the analyst said.
Write to Dana Mattioli at dana.mattioli@wsj.com and Anna Wilde
Mathews at anna.mathews@wsj.com
Corrections & Amplifications
An earlier version incorrectly said Humana had the smallest
revenue total among the top five health insurers.
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