Cigna rejects Anthem's $47-bn bid over price, antitrust concerns

US health insurer Cigna Corporation has rejected Anthem Inc's $47-billion takeover bid, saying it was inadequate and not in the best interests of its shareholders. Cigna also said its rival was ''facing a number of major issues'', including a lack of a growth strategy, its membership in the Blue Cross Blue Shield Association and related antitrust actions.

Anthem, the largest managed healthcare company, had, on Saturday, offered to buy the smaller health insurer in what would be the biggest takeover ever in a US health insurance sector.

Cigna Corporation also confirmed the receipt of a highly conditional, non-binding proposal from Anthem Inc, on 20 June. The non-binding proposal is for $184 a share, about 31 per cent of which would be paid in Anthem shares and the rest in cash.

That is a 29-per cent premium to Cigna's average closing price in the past 20 trading sessions. Anthem said on Saturday that the total transaction value is $53.8 billion, including net debt.

The merged entity would be about 24 per cent owned by Cigna shareholders and would serve about 53 million members.

''Cigna's board of directors has carefully reviewed this proposal consistent with the company's continued focus on maximising shareholder value and creating differentiated value for its customers, clients and other stakeholders in a dynamic, rapidly-evolving healthcare environment.

''Based on a number of factors in the proposal and unaddressed concerns regarding the ability to achieve the benefits of a potential combination, the Cigna board has unanimously determined the proposal is inadequate and not in the best interests of Cigna's shareholders,'' Cigna Corporation stated in its statement rejecting the proposal.

Cigna said that it has included details of these factors and concerns in its letter to Anthem's board of directors.

''As we are sure you realise, any potential combination has to be compared to our industry-leading performance as a stand-alone company. Under the strong leadership of the board of directors and its management team, Cigna has a consistent track record of strong financial performance and successful shareholder value creation.''

Cigna noted that its share price rose almost 200 per cent in the five years beginning 31 December 2009. Anthem shares, however, significantly lagged the performance of both Cigna and the Managed Care peer group (as defined in Anthem's most recent proxy statement) in the same period.

Cigna said since implementing its ''Go Deep, Go Global, Go Individual'' strategy in 2009, its adjusted income from operations rose over 80 per cent or 13 per cent compound growth per year, while Anthem's adjusted net income declined overall and in four of the five years.

Cigna's revenues almost doubled during the period, delivering 14 per cent per year compound growth, while Anthem's grew at an anemic 3 per cent per year.

Faced with these challenges, Anthem opted to support its earnings per share by deploying massive amounts of capital to share repurchases, totaling over $14.5 billion since 2009 (accounting for over 110 per cent of Anthem's adjusted net income). This approach reinforces Anthem's lack of a growth strategy and is incompatible with sustainable long-term growth, Cigna pointed out in its letter rejecting the offer.

A combination involving Anthem and Cigna under the right circumstances has the potential to bring together our complementary strengths in a manner that would provide substantial benefits to both consumers of healthcare services and healthcare professionals, while delivering immediate and sustainable economic returns to shareholders.

However, Cigna said, Anthem is facing a number of major issues, including a lack of a growth strategy, complications relating to membership in the Blue Cross Blue Shield Association (BCBSA) and related antitrust actions, and other significant challenges, such as the massive data breach in February.

Cigna said these fundamental issues, and Anthem's inability to address them in the context of a strategic combination, caused its management to terminate a prior discussions earlier this year.

''We have attempted to engage in dialogue so that we can understand and consider these issues. Unfortunately, you have continued to avoid addressing these key concerns and have failed to demonstrate what has changed over the past few months. At the same time, you have decided to fundamentally alter the nature of a potential combination. Taken together, your actions have moved us off our once productive path,'' Cigna stated.

Anthem said combining with Bloomfield, Connecticut-based Cigna would boost adjusted earnings by more than 10 per cent in the first year. Together, they'll generate more than $115 billion in annual revenue.

A $53.8-billion enterprise value for Cigna would be about 14 times what the company earned before interest, taxes, depreciation and amortization in the past 12 months. That's more than double Anthem's own EBITDA multiple.

''This combination is the absolute best strategy for both organizations to maximize the potential and lead the transformation of the health care industry,'' Anthem chief executive officer Joseph Swedish said in the statement.

Cigna Corporation provides all its products and services exclusively by or through operating subsidiaries of Cigna Corporation, including Connecticut General Life Insurance Company, Cigna Health and Life Insurance Company, Life Insurance Company of North America and Cigna Life Insurance Company of New York.

Its products and services include an integrated suite of health services, such as medical, dental, behavioral health, pharmacy, vision, supplemental benefits, and other related products including group life, accident and disability insurance.

Cigna claims to have sales capability in 30 countries and jurisdictions, and over 85 million customer relationships throughout the world.