Cigna and Humana Merger Unravels Amid Price Disputes, Cigna to Pursue Share Buyback

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Cigna has reportedly withdrawn from a significant merger with Humana, citing failed negotiations on pricing as the primary reason, according to insider sources. The deal, if successful, would have propelled the combined entity’s value beyond $140 billion, positioning it as a major player in the insurance sector. The potential mega-deal would have undoubtedly faced scrutiny from regulators, especially in light of regulatory blocks on similar consolidations in the health insurance sector six years ago. Cigna, undeterred by the merger setback, has announced plans to repurchase $10 billion worth of shares, a move deemed by management as a value-enhancing use of capital given their belief that Cigna shares are currently undervalued.

Connecticut-based Cigna, whose shares rose 12.1% to $290.07 in premarket trading on Monday, is down approximately 22% this year, experiencing a 10% decline since late November when reports of the deal talks with Humana surfaced. The company remains open to the prospect of a future merger with Humana, asserting confidence in the deal’s regulatory feasibility despite the Biden administration’s stringent stance on mergers.

Both Cigna and Humana are significant players in the health insurance sector, each with distinct operations. Cigna, a global health service company, has a diversified portfolio covering insurance, pharmacy benefits, behavioral health, and related services. The company’s strategic decision to explore the sale of its Medicare Advantage business, which caters to government health insurance for individuals aged 65 and older, indicates ongoing efforts to refine its business focus.

On the other hand, Humana, a prominent health and well-being company, specializes in health insurance and wellness solutions. The potential merger with Cigna would have endowed the combined entity with increased scale, positioning it as a formidable competitor against larger U.S. health insurance players such as UnitedHealth Group and CVS Health.

As Cigna navigates the aftermath of the abandoned merger, the company’s shift towards share buybacks and potential bolt-on acquisitions aligning with its strategies reflects a strategic realignment. The health insurance landscape remains dynamic, and Cigna’s future moves, including a possible revisiting of a Humana combination, will undoubtedly shape the trajectory of both companies in this ever-evolving sector.

Get to know a selection of emerging growth biotechs by exploring Noble Capital Markets’ Senior Analyst Robert LeBoyer’s coverage list.

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