Cigna Calls Off Humana Pursuit, Plans Big Stock Buyback
Health-insurance providers couldn’t agree on financial terms for deal that would have created $140 billion giant
Cigna CI 0.33%increase; green up pointing triangle abandoned its pursuit of a tie-up with Humana HUM 0.27%increase; green up pointing triangle that would have created a roughly $140 billion giant in the health-insurance industry.
The companies couldn’t come to agreement on price and other financial terms, according to people familiar with the matter. In the near term, Cigna is turning its focus toward smaller, so-called bolt-on, acquisitions.
The Wall Street Journal reported late last month that Cigna and Humana were discussing a combination whose structure was unclear. It turns out that Cigna would have been acquiring Humana in a cash-and-stock transaction with a large stock component, the people said.
But shareholders reacted coolly, with Cigna stock dropping nearly 10% since the talks surfaced as questions swirled about the wisdom of using of the company’s stock as currency, among other things.
Instead, Bloomfield, Conn.-based Cigna plans an additional $10 billion of stock buybacks, bringing its total planned repurchases to $11.3 billion.
Cigna continues to believe in the merits of a combination with Humana. A new company would have been focused on improving access to care and lowering costs for consumers, the people said.
Cigna also believes a deal would have been achievable from a regulatory perspective, despite the current administration’s tough stance on mergers and acquisitions.
Cigna intends to use the majority of its discretionary cash flow for share buybacks next year, including repurchasing at least $5 billion of common stock between now and the end of the first half of 2024.
A merger of the managed-care providers would have been huge. Even after the share declines, Cigna had a market value of roughly $76 billion as of Friday, and Humana’s stood at about $59 billion.
Cigna, which focuses largely on commercial insurance—the type provided by employers and bought by individuals, continues to explore the sale of its Medicare Advantage business, which could fetch several billion dollars in a divestment.
Selling its Medicare business, while halting its pursuit of Humana, could leave Cigna shut out of an important and growing part of the insurance business that is favored by investors. Cigna had long lagged behind the top contenders in the business in terms of size and scale.
Cigna’s $54 billion acquisition of Express Scripts Holding in 2018 made it one of the biggest players in pharmacy benefits, and it has been building up its Evernorth health-services unit, which includes an array of non-insurance businesses.
Humana, the No. 2 Medicare insurer, remains in the midst of its own succession handoff. Humana said in October that Jim Rechtin—previously chief executive of Envision Healthcare—would take over as president and chief operating officer, effective Jan. 8. Rechtin is then to take over as chief executive officer from Bruce Broussard in the back half of 2024.