An­them presses bid for Cigna merger

De­spite crit­i­cism from the smaller health in­surer, CEO seeks to rally sup­port.

Los Angeles Times - - BUSINESS - By Chad Ter­hune

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

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