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Cigna in Talks for Mega Merger with Humana: Potential $60 Billion Deal Faces Antitrust Scrutiny

Written by : Jayati Dubey

November 30, 2023

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The merger, if successful, would position the combined entity to compete more effectively against major US health insurance players, including UnitedHealth Group (UNH.N) and CVS Health.

In a strategic move that could reshape the US health insurance landscape, Cigna (CI.N) is reportedly in discussions to merge with Humana (HUM.N).

The proposed deal, which could surpass $60 billion in value, is expected to draw intense antitrust scrutiny. The increased scrutiny is due to the regulatory environment established after major consolidation attempts in the health insurance sector were rejected six years ago.

The talks come after a series of legal setbacks for Cigna, including abandoning a $48 billion deal to acquire Anthem in 2017, now known as Elevance Health. Aetna, now owned by CVS Health (CVS.N), also faced challenges, leading to the termination of a $37 billion deal to acquire Humana.

Now, Cigna and Humana are exploring a potential stock-and-cash deal that may be finalised by the end of the year, as reported by the Wall Street Journal.

The merger, if successful, would position the combined entity to compete more effectively against major US health insurance players such as UnitedHealth Group (UNH.N) and CVS Health.

With market values of $77 billion and $59 billion, respectively, Cigna and Humana currently have limited business overlap, primarily concentrated in Medicare plans catering to older Americans.

Humana's substantial and profitable Medicare business outpaces that of Cigna. Recent reports suggest that Cigna is considering selling its Medicare Advantage operations, aiming to improve the likelihood of the merger surviving antitrust challenges. Regulatory lawyers suggest that such a divestment could be a prudent move even before announcing the deal.

Despite the limited overlap between the companies, potential cost and revenue synergies are also constrained. Cigna's shares faced an 8.1% decline amid investor concerns that the company might overpay for Humana, which trades at higher valuation multiples.

Humana's shares also dipped 5.5% for the day as questions arose regarding Cigna's ability, with a net debt of $21.5 billion, to present a premium for the deal.

Both companies face challenges in the evolving landscape of healthcare economics, marked by rising medical costs and pressure on reimbursement from the US government.

Cigna, boasting a significant pharmacy benefit unit through Express Scripts, holds strength in commercial insurance. In contrast, Humana is a major player in the growing Medicare Advantage plans market, managing healthcare for individuals aged 65 and older or with disabilities.

As the healthcare industry navigates increased medical costs and changing dynamics post-pandemic, the potential merger between Cigna and Humana raises essential questions about the impact on pharmacies and suppliers.

Antitrust authorities may scrutinise the combination of their pharmacy drug benefit management (PBM) businesses, given that Humana oversees drug benefits for Medicare. At the same time, Cigna's Express Scripts ranks among the largest PBMs in the country.

The evolution of this potential mega-merger will undoubtedly be closely monitored by industry stakeholders, regulators, and investors alike.


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