Anthem, Cigna Shareholders Approve Merger As Antitrust Hurdles Await

4 Dec 2015 | Author: | No comments yet »

Cigna moves forward with Anthem merger, California’s DMHC comments.

A $48 billion deal that would create the nation’s largest health insurer inched closer to completion after shareholders of both Anthem and Cigna voted in favor of a buyout. The companies said that nearly all of their shareholders approved the deal, announced in July, when the Blue Cross-Blue Shield coverage provider Anthem said it would pay $103.40 and a portion of its stock for each Cigna share.

Barack Obama’s landmark health-care reform spawned a bevy of co-operatives to compete with them, among other measures intended to cut the cost of insurance. Anthem’s initial proposed terms entered in June stand and no changes were made to the agreement, according to Matthew Asensio, Financial and Corporate Communications Manager at Cigna. “We are pleased that Anthem shareholders have overwhelmingly voiced their support for our pending acquisition of Cigna, allowing us to move one step closer to making this compelling combination a reality,” said Swedish. At the September Financial Standard Solvency Board Meeting held by the Department of Managed Health Care (DMHC) in California, consultant Grant Cattaneo presented findings to the state regulator that a hypothetical Anthem-Cigna merger would reduce competiveness in 31 counties in the state, particularly in the individual and Medicare lines of business. That is partly because the exchanges on which co-operatives and private insurers alike were supposed to sell lots of new policies have proved a disappointment: last month UnitedHealthcare, America’s biggest health insurer, announced that it may stop selling policies on them. The Department’s most recent approval of the BlueShield acquisition of Care 1st on Oct. 9 cited that the order would bring Blue Shield into the Medi-Cal program.

Both federal and state regulators are reviewing the combination, which would create an insurance company that would cover more than 50 million people. The public is hostile too: a survey published in August by the Kaiser Family Foundation, a think-tank, found health insurers were even more disliked than other corporate punchbags, such as banks and airlines. Now the Anthem-Cigna merger will fall under DMHC scrutiny. “As a state regulator our focus in reviewing all plan mergers is to ensure compliance with the strong consumer protections and financial solvency requirements of the Knox-Keene Act. This deal and a proposed merger of Aetna and Humana have raised anti-trust concerns in part due to the negotiating leverage that the bigger insurers might gain over entities like health care providers. Yet the share prices of America’s five biggest health insurers—UnitedHealthcare, Aetna, Humana, Cigna and Anthem—have all roughly tripled over the past five years.

We want to be as inclusive as possible in our review, and given the public interest in these mergers, we intend to hold a public meeting on each significant merger.” All five will probably report record profits for this year, next year and several more to come, predicts Ana Gupte, an analyst with Leerink, a research firm. Cigna also, without admitting any wrongdoing, modified its proxy statement to shareholders about the proposed merger, the paperwork they use to make a decision on approving the merger. The results of most financial firms may have buckled under the weight of new regulation, but health insurers appear to be thriving in the complicated new regulatory environment. It also told how Anthem backed away from a purchase of Cigna, and how Cigna repeatedly made overtures to buy Humana, as well as considered selling itself to an unnamed company.

When firms like Cigna and Aetna sold off other insurance businesses in the 1990s to concentrate on health care, it seemed that the dynamic businesses were being divested, leaving lumbering rumps. The settlement has Cigna adding a few details about those negotiations — that the unnamed company wanted to know if Cigna decided to pursue another merger, for instance. The vast expense and unintelligible complexity of American health care may be a national disgrace, but they are a huge opportunity for firms that can navigate the system and minimise costs.

Shares of both targets are trading at roughly 25% below their agreed purchase prices, suggesting that investors doubt that the deals will be approved. Scale is an advantage in most areas of finance, but regulators increasingly see it as risky, and so are discouraging further consolidation among banks, in particular.

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