Cigna Corp. agreed to buy Express Scripts Holding Co. in an about $54 billion deal that builds on the rapid transformation of the health care business as companies and consumers chafe at rising costs.
The price includes $48.75 in cash and 0.2434 shares of stock of the combined company per Express Scripts share, the companies said in a statement Thursday. The terms represent a roughly 31% premium to Express Scripts’ closing price on Wednesday, according to the statement. Cigna will assume approximately $15 billion in Express Scripts debt, which the companies said will put the total value of the deal at $69.6 billion.
Express Scripts is the largest remaining independent drug middleman. Its biggest competitors are the pharmacy-benefits management companies run by CVS Health Corp. and UnitedHealth Group Inc.
The transaction is the latest in a series of moves by companies inside and outside the health sector to tame medical expenses. Many of the complaints about costs have focused on drugs, with criticism focused not just on pharmaceutical companies but also on the middlemen in the supply chain that oversee, distribute and dispense medications.
Pharmacy-benefits managers have come under particular pressure in recent weeks. President Donald Trump’s Council of Economic Advisers, in a report last month, criticized the companies’ market power and the opacity of their drug-price contracts. And on Wednesday, Food and Drug Administration Commissioner Scott Gottlieb took aim at what he called drug plans’ “rigged payment scheme.”
Employers are also increasingly restless over their high health care bills. Amazon.com Inc. said earlier this year it would team with Berkshire Hathaway Inc. and JPMorgan Chase & Co. on a new venture aimed at lowering employee health costs. And large employers from Walmart Inc. to Blackstone Group LP are experimenting with ways to reduce their outlays on employee health care.
“This transaction is yet another proof of ongoing vertical integration of health care providers and payors,” said Brian Tanquilut, an analyst with Jefferies Group.
On a conference call, executives said that the deal provided a particular opportunity to help manage spending for costly medicines for cancer and other complex diseases. Management of the use of those drugs has often been split between insurers and PBMs, and the merger could make their use more efficient.
“We saw this as the, beyond a shadow of a doubt, best strategic proposition,” said David Cordani, CEO of Cigna, who will also be CEO of the combined company, on the conference call. “It is going to deliver a compelling return from a shareholder standpoint.”
Shares of Express Scripts jumped 12% to $82.07 at 10:47 a.m. in New York, while shares of Cigna declined 10% to $174.65.
As the outcry over high drug prices has intensified in recent years in the U.S., the pharmaceutical industry has also blamed the pharmacy-benefits managers for not always passing on to patients the rebates they negotiate.
Express Scripts and its rivals are becoming more aggressive with tactics to control costs, increasingly denying coverage of some drugs. In addition, many health plans now subject patients to high-deductibles they must meet before their drugs are covered.
The agreement comes as Express Scripts is set to lose its biggest client. Last year, health insurer Anthem Inc. said it would set up its own pharmacy-benefits management unit, after earlier accusing Express Scripts of overcharging by billions of dollars.
The loss of Anthem after 2019 has put pressure on Express Scripts amid consolidation in the health industry. In December, CVS Health agreed to combine with Aetna Inc. in a $67.5 billion deal bringing together one of the largest U.S. drugstore chains and the third-biggest health insurer.
Last year, Anthem’s planned takeover of Cigna was blocked on concerns it would undermine competition, ending an almost two-year battle to combine two of the biggest health insurers in the U.S.
In November, Express Scripts’ top executive said the company would be open to a deal at the right price, though it wasn’t actively looking for one.
“We don’t need to sell to be very successful in the future, but we are always open to others who may all of sudden conclude they want what we have,” Express Scripts Chief Executive Officer Tim Wentworth said.
—With assistance from Zachary Tracer.
— Read CVS-Aetna Deal Could Start a Health Takeover Runon ThinkAdvisor.