Anthem presses bid for Cigna merger
Despite criticism from the smaller health insurer, CEO seeks to rally support.
Health insurer Anthem Inc. pressed ahead with its pursuit of a $ 54- billion merger with Cigna Corp. despite a spurned bid and increasing concerns about industry consolidation.
Joseph Swedish, Anthem’s chief executive, went on the offensive Monday trying to rally support for his takeover offer among Cigna shareholders and put pressure on the company’s board, which rejected his $ 184- ashare offer over the weekend.
He also took on critics of health insurance consolidation who fear it will lead to higher premiums and less choice. Swedish touted the idea of a combined company that would squeeze unnecessary costs out of the healthcare system and invest in better technology and service for customers.
In a conference call with analysts and investors, Swedish said he’s hopeful negotiations with Cigna will be rekindled soon. Anthem said it’s not aware of other bidders, but some analysts predict another suitor may emerge.
“We are determined to move quickly to complete this transaction,” Swedish said. “The customer benefits from a clear improvement in cost efficiencies … and continued investment in simplifying the healthcare experience.”
Investors cheered the potential tie- up, bidding up shares in both companies.
Shares of Anthem, the nation’s second- largest health insurer, shot up $ 5.98, or nearly 4%, to $ 171.04 in trading Monday. Cigna, the fifthbiggest health insurer, saw its shares jump $ 7.34, or 5%, to $ 162.60.
Analysts expect Cigna to be acquired, and they say An-
them remains the logical buyer.
“We believe that pressure on Cigna’s board is inevitable,” said Joshua Raskin, a Wall Street analyst at Barclays. “For us, the question is more of a when than an if ” a deal is reached.
Ana Gupte, an analyst at Leerink Partners in New York, said Anthem and Cigna aren’t that far apart on an agreement. “We expect that while Cigna may negotiate for a modestly higher price that this deal will be consummated,” she said.
Anthem went the unusual route of taking its negotiations public Saturday after talks broke down over several issues, including the role of Cigna’s chief executive in a combined company.
Cigna rejected Anthem’s latest offer Sunday and blamed it for failing to address some outstanding issues. It declined to comment further Monday.
The cash- and- stock offer is worth $ 54 billion, including debt. That represents a 35% premium to Cigna’s stock price on May 28, when deal rumors sent health insurance stocks soaring.
Together, the two companies would have $ 115 billion in annual revenue and serve 53 million members. That would make it the largest U. S. health insurer in terms of membership, ahead of industry leader UnitedHealth Group Inc.
The consolidation drive in the health insurance sector has set off alarms for many employers and consumers that are already bearing the brunt of spiraling medical costs.
Los Angeles resident Madelyn Gilbreath, 62, said her Anthem Blue Cross premium jumped 15% this year, and she worries about what will happen if the company swallows up another rival.
“Anthem is a predatory company all about making money,” she said. “They are not about paying doctors a reasonable amount or expanding access to care. It’s very frightening.”
Many hospitals and doctors express similar worries about a handful of industry giants dictating prices and networks.
“You could have two or three giant insurers in a takeit- or- leave- it position,” said Robert Fuller, an attorney who represents hospitals at the L. A. law firm of Nelson Hardiman. “The blunt- force size plus lack of choice will mean more and more hospitals have to take what’s offered.”
The American Academy of Family Physicians said existing troubles with narrower insurance networks could get worse.
“Recent actions by the insurance industry, with respect to the narrowing of physician and hospital networks, would only be exacerbated if a single insurer held greater inf luence over any potential market,” said Dr. Reid Blackwelder, chairman of the family physician group.
Some health- policy experts point out that hospitals and medical providers have been merging as well, and they often use their market power to boost prices.
Another hurdle for Anthem is potential opposition from its fellow Blue Cross and Blue Shield plans. Anthem sells Blue Cross policies in California and 13 other states.
Cigna officials raised the issue Sunday, questioning how Anthem would do business in states where another insurer is the local Blues plan.
The Blue Cross and Blue Shield Assn. has rules governing competition among Blue- branded health plans and grants exclusive rights in certain markets. The group referred questions Monday to Anthem, the association’s biggest member.
Swedish expressed confidence that those details can be resolved and won’t impede completion of a Cigna deal.
“We are confident in our ability to get regulatory approvals, including matters related to the Blue Cross Blue Shield Assn.,” Swedish said.
On top management, Anthem has proposed that Swedish serve as CEO for two years and Cigna’s leader, David Cordani, could be his No. 2 before eventually getting a shot at the top job.
Cigna has sought a bigger role for Cordani right away or a guarantee of the CEO job.
Anthem’s Swedish struck a conciliatory tone toward Cigna’s management Monday after a war of words during the weekend.
“I will simply say I have a lot of respect for the CEO” of Cigna, he said, “and the management team in its entirety.” chad. terhune@ latimes. com Twitter:@ chadterhune