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Cigna Anthem Merger may not get done

FROM LIFEHEALTHPRO:

Bloomberg) — Cigna Corp.’s acquisition by health-insurance rival Anthem (NYSE:ANTM) may not be approved this year, Cigna (NYSE:CI) said Friday in a regulatory filing.

Shares of both companies declined. An analyst said the delay could be a sign of trouble for the deal, which is one of two pending health insurance combinations being scrutinized by regulators. Regulators have expressed concern about further concentration of the health care industry.

“While the company continues to work toward achieving regulatory approval as quickly as possible and to target a closing date in the second half of 2016, the closing will ultimately be subject to the approval and timing of the regulators,” Cigna said in a quarterly report filed with the U.S. Securities and Exchange Commission (SEC). “In light of the complexity of the regulatory process and the dynamic environment, it is possible that such approvals may not be obtained in 2016.”

Joseph Swedish, Anthem’s chief executive officer, said last week that he expected the acquisition of Cigna to be completed in the second half of this year. On Friday, Jill Becher, an Anthem spokeswoman, said the insurer continued to expect the transaction to be completed on that timeline.

Anthem agreed in July to buy Cigna in a cash-and-stock deal that valued Cigna at about $48 billion. The transaction, along with the pending acquisition of Humana (NYSE:HUM) by Aetna (NYSE:AET), would reduce the number of big U.S. health insurers to three, from five.

The Anthem-Cigna merger requires approval from the U.S. Justice Department’s antitrust division as well as state insurance regulators. In March, Bill Baer, now the No. 3 official at the Justice Department, called the Cigna deal and Aetna’s deal for Humana “transformational” and said they require close scrutiny from the government.

Matt Asensio, a Cigna spokesman, declined to specify why the insurer cautioned that the deal may not happen this year.

“This disclosure reflects our current understanding, based on the breadth and depth of the review and where we believe we are in the process now,” Asensio said. “We feel that it’s a dynamic environment, and there’s a lot of complexity in the regulatory process, so it’s possible that the approvals may not be obtained in 2016.”

Cigna said in the filing that Anthem may owe it a breakup fee of $1.85 billion if the transaction isn’t completed by Jan. 31, 2017. That deadline can be pushed back to April 30, Cigna said.

Cigna fell 1.9 percent to $132.40 at 10:30 a.m. in New York, while Anthem declined less than 1 percent to $136.77.

Peter Costa, an analyst at Wells Fargo & Co., said Cigna’s disclosure indicates the deal could be delayed or not approved at all. “The 10Q deal timing disclosure is a significant item that likely widens the spread,” he wrote in a research note to clients.

See also:

Aetna’s Humana deal pressures Cigna to agree on Anthem offer

AIG Confirms It Will Get Breakup Fee

Big Plan mergers not done deal.

The chief executive officers of Aetna Inc. and Anthem Inc. are confident that their planned acquisitions of rivals Humana and Cigna, respectively, will go forward. Shareholders have approved the $54.2 billion and $47.5 billion transactions, and both are expected to close in the second half of the year.

Yet a closer look at how the Department of Justice is treating such megamergers suggests that the sailing may not be quite so smooth.

A recent report from law firm Gibson Dunn & Crutcher LLP reveals that antitrust enforcement is growing, with 2015 a “banner year for [Department of Justice] merger enforcement efforts.” In fact, antitrust enforcement agencies brought an average of 34 merger enforcement ations per year, increasing to 41 between 2010 and 2012.

Going forward, Gibson Dunn believes federal agencies will “continue to challenge transactions at a relatively high rate.”

While the Justice Department is still reviewing the Aetna-Humana and Anthem-Cigna mergers, it has set a precedent of objecting to high-profile merger proposals in other sectors. General Electric and AB Electrolux called off their deal in December, as did Tri-Union Seafoods and Bumble Bee Foods, after the Department objected to them on the basis of reduced competition.

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA.
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