By Ankur Banerjee
(Reuters) - U.S. health insurer Cigna Corp
The move follows the $69 billion merger of insurer Aetna Inc
The deals seek to lower healthcare costs by bringing under one roof pharmacy and medical claims, and give the combined entities greater leverage in price negotiations with drugmakers.
Cigna’s offer consists of $48.75 in cash and 0.2434 shares of stock of the combined company for each Express Scripts share, amounting to $96.03 per share. That represents a premium of nearly 31 percent to Express Scripts’ Wednesday closing price.
Express Scripts shares were up 18.6 percent at $87.10, while Cigna shares were down 4.25 percent at $186.
The transaction is valued at $67 billion, including about $15 billion in Express Scripts’ debt, the company said.
Pharmacy benefit managers administer prescription drug programs for health insurers, self-insured companies and government agencies, negotiating deals with drug manufacturers, working with pharmacies and processing claims.
The CVS-Aetna deal was seen pressuring rival insurers, drugmakers, PBMs and retail pharmacies to consider mergers or switching partners to try to keep up with the potential healthcare cost savings or increase in profit margins.
The wave of consolidation in the sector also comes in the backdrop of a shifting landscape, including changes in the U.S. Affordable Care Act, rising drug prices and the threat of competition from Amazon.com Inc
Leerink Partners analyst Ana Gupte said the deal may surprise investors given Cigna has said that they are satisfied with their PBM arrangement with UnitedHealth’s
“It is possible that the threat of an Amazon entry into the healthcare and possibly the drug supply chain landscape, with the latest news of the Amazon/Berkshire Hathaway/JPMorgan employer coalition has spurred Cigna and Express Scripts to tie the knot.”
Amazon, Berkshire Hathaway Inc
DEAL DETAILS
After the deal closes, Cigna shareholders will own about 64 percent of the combined company and Express Scripts shareholders the rest.
Cigna intends to fund the cash portion of the deal through a combination of cash on hand, Express Scripts debt and new debt issuance. The company is expected to have debt of about $41.1 billion after the deal closes.
The insurer said it obtained fully committed debt financing from Morgan Stanley Senior Funding and The Bank of Tokyo-Mitsubishi UFJ Ltd for the deal.
The combined company will be led by current Cigna Chief Executive Officer David Cordani.
The deal comes a year after Cigna’s deal to buy Anthem Inc
Morgan Stanley was the financial adviser to Cigna and Wachtell, Lipton, Rosen & Katz was the legal adviser. Paul, Weiss, Rifkind, Wharton & Garrison LLP is providing regulatory counsel.
Centerview Partners and Lazard Frères were financial advisers to Express Scripts, with Skadden, Arps, Slate, Meagher & Flom LLP serving as legal counsel and Holland & Knight LLP as regulatory counsel.
(Additional reporting by Abinaya Vijayaraghavan, Philip George and Akshay Lodaya in Bengaluru; Editing by Saumyadeb Chakrabarty)