Daily Management Review

Merger of Health Insurers Anthem, Cigna raises Doubts as it is Reviewed by Regulators


05/24/2016




Merger of Health Insurers Anthem, Cigna raises Doubts as it is Reviewed by Regulators
As news of management squabbles added to concerns over the proposed merger being review by antitrust regulators, growing doubts were expressed by Wall Street analysts about the pending $54 billion merger of U.S. health insurers Anthem Inc and Cigna Corp on Monday.
 
The shares of both the companies fell in recent times. While Anthem shares fell 1.8 percent to $133.18, Cigna shares closed down 4 percent at $126.15, well below Anthem's original $188 per share offer of cash and stock announced last July.
 
"The market is telling you that it feels the probability of the deal is significantly less than 100 percent," Morningstar analyst Vishnu Lekraj said in a telephone interview. However his own probability forecast was not provided by Lekraj.
 
The deal had a less than 50 percent chance of closing, down from her previous view of 70 percent, estimated Leerink Partners analyst Ana Gupte on Monday. She also lowered her stock price targets on both companies.
 
In recent times, there have been two major deal proposals which would mark an unprecedented consolidation of the U.S. health insurance market to three major players from five major players. Earlier Aetna Inc had proposed a value of $34 billion for the purchase of Humana Inc. The Anthem's bid for Cigna follows close on the heels of Aetna Inc's bid for Humana Inc.
 
U.S. healthcare costs, both for hospital services and pharmaceutical prices, are mounting, claim both Anthem and Aetna and their argument in favor of the deals are that they need the greater scale to help curb mounting healthcare costs. However due to concerns that following the deals, the companies may raise insurance costs for customers, both deals have faced close scrutiny from state and federal regulators.
 
They were more confident that Aetna could win approval for its Humana deal, healthcare analysts have said in recent weeks. However questions are being raised by the same analysts over whether Anthem and Cigna would be able to satisfy antitrust concerns. Both Anthem and Cigna compete for business from large U.S. employers who provide health coverage for their workers.
 
Several issues between the companies that include a lawsuit by Anthem against pharmacy benefits manager Express Scripts Holding Co, and submissions of information to antitrust regulators reviewing the deals, were the bone of contention and on Sunday the Wall Street Journal reported that Anthem and Cigna were arguing behind the scenes over these issues.
 
"If the two companies are in a state of conflict, it makes an already challenging transaction very difficult," Gupte said in a telephone interview. However, based on feedback from antitrust and policy experts advising the government, the bigger issue was that the companies' Fortune 500 clients might not be on board with the deal, she said.
 
Lekraj said that as the government worked to trim healthcare costs and lower reimbursement rates, he believed Anthem and Cigna still felt the need to get the deal done to maintain profits.
 
"The Justice Department will ultimately approve the deal as long as management teams can get along and keep the deal intact, and egos don't work their way into the situation," he predicted.
 
(Source:www.reuters.com) 






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