Anthem Inc. (NYSE:ANTM) and Cigna Corp. (NYSE:CI) say they have agreed on a plan that calls for Anthem to acquire Cigna for $54 billion in cash and stock, or $188 per share.
Questions over management structure had slowed previous merger negotiations. The companies say their definitive agreement calls for Joseph Swedish, Anthem’s president, to be chairman and CEO of the combined company, and David Cordani, the president of Cigna, to be Cigna’s president and chief operating officer.
Anthem shareholders would own about two-thirds of the combined company and Cigna shareholders would own 33 percent. Anthem would have a debt-to-capital ratio of about 49 percent when it closed on the deal, but believes it could cut that to “the low 40 percent range” within 24 months.
The companies hope to complete the deal by the second half of 2016.
To complete the deal, the companies must get approvals from Anthem shareholders, from Cigna shareholders, and from state insurance regulators and federal antitrust regulators. Regulators could block the deal or require the companies to take steps to address concerns that the combined company would be too big.
Today, the companies have a total of 53 million in medical plan enrollees and about $115 billion in annual revenue.
Anthem, which has about 38 million enrollees, holds Blue Cross, or the Blue Cross and the Blue Shield, licenses in 14 states and has Medicaid operations in 19 states.
Cigna, which has about 15 million enrollees, has a large international health insurance operation. Cigna was founded in 1865 as Connecticut General. It also incorporates the old Insurance Company of North America, a company founded in 1792.
The companies cite uncertainty about the Patient Protection and Affordable Care Act (PPACA) exchange system, and PPACA-related enrollee mix risk, as potential risk factors.
The companies have filed a bundle of documents with the U.S. Securities and Exchange Commission (SEC) in connection with the deal announcement. In one, for example, Anthem says its board has approved a change in by-laws that call for certain types of breach-of-fiduciary claims and other claims to be handled by state or federal courts in Indiana.
The companies have also posted a deal announcement conference slidedeck. In the press release and the slidedeck, the companies do not directly mention agents and brokers.
John Sarich, vice president of strategy at VUE Software, said in a comment on the deal written shortly before the acquisition agreement was announced said he believes a wave of health insurance deals is occurring because PPACA is designed to make the issuance of basic major medical coverage a single-payer industry. “The insurance companies like selling supplementary coverage to Medicare … where they are not stuck with mega medical bills,” Sarich said. “There is sufficient margin in Medicare Advantage. But with the [Affordable Care Act], there is no single payer — yet.”
The major medical market will end up with a few big companies that will assume the risk of providing major medical coverage, leaving other companies to focus on providing higher-margin supplementary products, Sarich predicted.