(Photo: Michael Nagle)

Activist investor Carl Icahn said shareholders in Cigna Corp. should vote against the $54 billion takeover of pharmacy-benefits firm Express Scripts Holding Co. because the health insurer is “dramatically overpaying” for the business.

“Cigna management is offering to pay an all-time high price for a company that, as a result of secular changes, is currently standing on very dangerous ground,” the billionaire investor wrote in an open letter to shareholders on Tuesday. “It’s a travesty to complete this deal.”

Icahn, who disclosed a 0.56% stake in Cigna, said the provider of health insurance to companies should pursue a multi-year partnership with firms such as Express Scripts — which help insurers and employers manage their prescription drug benefits — instead of a takeover, and use its cash to buy back shares.

A copy of Icahn’s letter is available here, and a related document is available here.

(Related: Icahn Said to Ease Off Demand for AIG Breakup Under New CEO)

Cigna agreed in March to a cash-and-stock deal for Express Scripts with the goal of streamlining different parts of the health care system by bringing them under one roof, saving money for clients of the combined firm.

Cigna’s request for shareholders to vote for the deal is available here.

Tight Deadline

The activist investor filed proxy material with regulators Tuesday soliciting votes against the deal, and to oppose postponing a special shareholder meeting slated for Aug. 24 if the company doesn’t have sufficient support for the transaction. Launching the proxy fight with a little more than two weeks until the vote is an unusual move for the activist. Such campaigns typically kick off months in advance in order to allow sufficient time to solicit other shareholders’ backing.

A representative for Cigna wasn’t immediately available for comment.

Icahn criticized the rationale behind the proposed tie up.

“We strongly disagree with the idea that Cigna’s only route to offering a more integrated solution is to make a $60 billion leveraged bet on a company with as many challenges as Express Scripts,” he wrote. Cigna’s stock could advance to become worth more than $250 a share “in a reasonable time frame,” while Express Scripts is currently worth less than $60 apiece, he argued.

Shares of Bloomfield, Connecticut-based Cigna closed Monday at $187.86 in New York while Express Scripts closed at $76.83.

Flawed Rebates

Icahn said he believed Express Scripts faces a number of challenges, including regulatory hurdles stemming from opposition to its “highly-flawed” rebate system that will dramatically reduce its profitability. The company also faces potential competition from the likes of Amazon.com Inc. and from former and existing customers, such as Anthem Inc., which could establish their own competitive service.

“When Amazon starts to compete as we believe they will, with their 100 million Prime users and scale distribution system, they will have no trouble breaking into the so-called ‘ecosystem,’” Icahn’s letter said. “With lower prices, the beneficiary will be American consumer, not the owners of Express Scripts.”

Both Cigna and Express Scripts said last week they continue to support the transaction after reports that Icahn had built a sizable stake in Cigna and planned to oppose the deal.

“Worst Blunders”

David Cordani, Cigna’s chief executive officer, said on a conference call Thursday that he continues to believe the takeover is in the best interest of shareholders. He also said it would immediately add to earnings and give Cigna “exceptional financial flexibility in a dynamic marketplace.”

Brian Henry, an Express Scripts spokesman, said Tuesday that the company is well positioned for growth and remains confident in the deal. “We delivered solid second-quarter earnings, raised our guidance for client retention, and our expectations for prescription claims volume growth in our core business,” he said in an email.

Icahn said he believed the transaction would be disastrous for his fellow Cigna holders.

“Purchasing Express Scripts may well become one of the worst blunders in corporate history, ranking up there with the Time Warner/AOL fiasco and General Electric’s long-running string of value destruction,” he said.

—With assistance from Matthew Monks, Zachary Tracer and Timothy Sifert.

— Read Icahn Opposes Cigna-Express Deal, Fearing Amazonon ThinkAdvisor.

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