Cigna abandons Humana acquisition plans amidst price dispute, announces US$10 billion share repurchase

USA — U.S. health insurer Cigna has decided to halt negotiations for the acquisition of rival Humana, citing disagreements over financial terms and pricing.

The potential merger, which would have created a healthcare giant surpassing US$140 billion in value, faced skepticism due to anticipated antitrust scrutiny.

Concerns among shareholders and the failure to reach a consensus on the deal’s valuation ultimately led to the abandonment of the acquisition plans.

The Wall Street Journal reported that shareholder reservations and pricing disputes contributed to the breakdown of talks between Cigna and Humana.

The ambitious plan to form a massive enterprise faced challenges not only from internal disagreements but also from the Biden administration’s increased focus on scrutinizing consolidations among large companies, leading to heightened antitrust concerns.

The terminated discussions come six years after regulatory authorities thwarted major consolidation efforts in the U.S. health insurance sector.

A potential Cigna-Humana alliance, with their combined market values, would have triggered significant antitrust scrutiny, given the concentration of business overlaps, especially in Medicare plans for older Americans.

Despite the setback in acquisition plans, Cigna announced a substantial move to repurchase an additional US$10 billion worth of shares.

This brings the total share repurchases to US$11.3 billion, highlighting the company’s confidence in the value of its shares.

Cigna’s Chairman and CEO, David Cordani, emphasized their belief in the undervaluation of Cigna’s shares and stated that share repurchases represent a strategy to enhance value for shareholders.

Cordani also outlined the company’s strategic approach, indicating a willingness to consider bolt-on acquisitions aligned with their strategy and explore “value-enhancing divestitures.”

The potential divestiture of Cigna’s Medicare Advantage business is still under consideration. This business manages government health insurance for individuals aged 65 and older.

The sale of this segment could potentially pave the way for future strategic moves, as it aligns with Cigna’s restructuring efforts.

While both Cigna and Humana have not immediately responded to Reuters’ request for comments, the possibility of a future tie-up has not been ruled out entirely, according to sources familiar with the matter.

The challenges of consolidation in the health insurance sector have been evident in previous attempts, with legal battles leading to the abandonment of significant deals.

Anthem’s US$48 billion acquisition of Cigna was called off in 2017 after antitrust challenges, and Aetna’s US$37 billion deal to acquire Humana faced a similar fate.

Analysts suggest that a potential sale of Cigna’s Medicare Advantage business could improve the prospects of a merger with Humana by addressing antitrust concerns.

In 2018, CVS acquired health insurer Aetna for US$78 billion, and Cigna purchased pharmacy benefit manager Express Scripts for US$67 billion.

Additionally, health insurer Centene bought WellCare for US$17 billion in 2020. While all three significant mergers were completed without facing opposition, Centene had to divest certain businesses to meet regulatory requirements.

Payers have continued their trend of acquiring physician practices, exemplified by CVS’s recent acquisition of Oak Street Health for nearly US$11 billion.

UnitedHealth has also engaged in a series of deals, expanding its network to include 90,000 owned or affiliated physicians, constituting one-tenth of the nation’s total doctors.

Despite facing legal challenges from the Department of Justice, UnitedHealth successfully completed a US$13 billion acquisition of data analytics company Change Healthcare last year.

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