And then there were three. The rapid consolidation of the US health insurance industry continued on Friday with the announcement that Anthem plans to buy rival Cigna in a deal valued at $54.2bn that will create the country’s largest health insurer by membership.
Together the two companies would cover about 53 million patients in the US, ahead of the largest insurer by revenues, UnitedHealth, which covers 45.8 million people. The proposed transaction comes just three weeks after the third-largest insurer, Aetna, bid $34bn for Humana, the fifth largest. Should both deals be approved by regulators and shareholders, the US’s five massive US health companies will be reduced to three even larger ones.
The seismic shifts in the health insurance market come after the supreme court validated, for the second time, Barack Obama’s Affordable Care Act, making its repeal unlikely even in the face of continued Republican opposition.
Obamacare has increased the size of the health insurance market but put pressure on prices. The rapid consolidation of the health insurance industry – which is seeking cost reductions through mergers and greater scale – is likely to present a challenge to the Obama administration and antitrust regulators are expected to closely examine the deals.
On Friday morning investors appeared to also have their doubts about the takeover and Cigna’s shares were initially trading below Anthem’s $188 a share offer.
Anthem, previously known as WellPoint, operates Blue Cross and Blue Shield healthcare plans in 14 states and is a major player in both small-employer plans and those of multi-state employers. Cigna is better known for its focus on large employers.
Shareholders of Cigna, based in Bloomfield, Connecticut, will receive $103.40 per share in cash and 0.5152 shares of Anthem stock for each of their shares. The companies put the total value at $188 per share. The deal is set to close in the second half of 2016 if it receives approval.
Anthem, based in Indianapolis, has pursued Cigna aggressively for a year. Talks were initiated last summer but broke down over who would run the combined group. In June, Cigna rejected a $47.5bn offer from Anthem, worth $184 a share, calling it “inadequate and not in the best interests of Cigna’s shareholders”.
Joseph Swedish, Anthem’s chief executive, will oversee the combined entity. Anthem said on Friday that it expected to achieve nearly $2bn in annual cost savings as a result of the merger.
“We believe that this transaction will allow us to enhance our competitive position and be better positioned to apply the insights and access of a broad network and dedicated local presence to the healthcare challenges of the increasingly diverse markets, membership and communities we serve,” Swedish said in a press release.
