U.S. health insurer Cigna (CI.N) has halted its pursuit of an acquisition of rival Humana (HUM.N) due to an inability to reach a consensus on the price, according to two sources familiar with the matter.
This development comes amid Cigna’s announcement of a $10 billion share buyback plan.
The potential Cigna-Humana merger, with a combined value exceeding $140 billion based on their market capitalizations, was poised to face intense antitrust scrutiny.
This proposal emerged six years after regulatory authorities thwarted major consolidation attempts within the U.S. health insurance sector.
The primary reason for the termination of deal negotiations was the inability to agree on the purchase price, as disclosed by sources close to the matter.
However, these sources also indicated that the possibility of a future merger remains on the table.
In contrast, Cigna announced a $10 billion share repurchase program, raising its total repurchases to $11.3 billion.
Consequently, shares of Cigna, headquartered in Connecticut, experienced a 12.1% premarket trading surge to $290.07 on Monday.
This comes after a year marked by a 22% decrease in Cigna’s share price, which included a nearly 10% drop since late November, coinciding with reports of the Humana deal talks.
On the other hand, Humana’s shares witnessed a 2.3% uptick in modest trading.
Cigna’s Chairman and Chief Executive Officer, David Cordani, expressed confidence in the company’s value proposition and stated, “We believe Cigna’s shares are significantly undervalued, and repurchases represent a value-enhancing deployment of capital as we work to support high-quality care, improved affordability, and better health outcomes.”
Cordani also indicated that the company would consider strategic bolt-on acquisitions and “value-enhancing divestitures.”
In a surprising move, Cigna is exploring the sale of its Medicare Advantage business, which administers government health insurance for individuals aged 65 and older.
This decision represents a shift from its previous expansion efforts in this sector.
Humana has chosen not to comment on the matter, while Cigna has refrained from responding to Reuters’ request for commentary regarding the deal talks, initially reported by the Wall Street Journal.
The proposed merger would have provided the combined entity with increased scale to compete with larger U.S. health insurance players such as UnitedHealth Group (UNH.N) and CVS Health (CVS.N).
Currently, Cigna and Humana, with market valuations of $77 billion and $59 billion, respectively, have overlapping businesses, particularly in Medicare plans for older Americans.
To potentially alleviate antitrust concerns, Cigna’s consideration of selling its Medicare Advantage operations may enhance the chances of a merger with Humana surviving regulatory challenges, legal experts suggest.
However, the sector has a history of antitrust issues, as evidenced by the legal battles that led to the abandonment of previous consolidation efforts involving Anthem (now Elevance Health) and Aetna, now owned by CVS Health.
Healthcare economist Craig Garthwaite of Northwestern University anticipates that antitrust authorities may challenge the merger, but believes that divesting Cigna’s Medicare Advantage business could strengthen the deal’s prospects.