Anthem Says Deal To Buy Cigna Still On Track

As questions grow about Anthem's proposed acquisition of Cigna, the Indianapolis-based company says the completion of the deal remains "the highest priority."

"Anthem and Cigna are not in discussions regarding a termination of the merger agreement or the payment of a break-up fee," said Anthem spokeswoman Jill Belcher. "Anthem continues to be in ongoing dialogue with the Department of Justice and state regulators regarding the compelling combination of our two companies to increase consumer access to high quality, affordable health care."

Less than a week after a coalition of Democrats on the Senate Judiciary Committee, including Sen. Richard Blumenthal, asked the Justice department to block the Anthem-Cigna deal because it would be anti-competitive, The New York Post reported Monday that Anthem's chief financial officer indicated to analysts at a June 21 meeting that the company was ready to walk away from the merger.

The merger agreement says that if it doesn't happen, Anthem will pay Cigna, which has its headquarters in Bloomfield, a $1.85 billion breakup fee.

"Many on the Street expect the deal to break," said Leerink Partners Senior Analyst Ana Gupte, who covers health care services.

She said she wouldn't be surprised if the two insurers are discussing "some sort of compromise" on a fee that would be part an agreement to cancel the deal.

Blumenthal said Tuesday he expects the Department of Justice to announce decisions on both the Anthem-Cigna deal as well as Aetna's proposed acquisition of Humana shortly.

"We do have the sense that it's pretty imminent," Blumenthal said. "We actually thought it might before the end of June."

Blumenthal said he met with Aetna CEO Mark Bertolini and Cigna CEO David Cordani before the letter to Justice Department was released"There were no assurances about [preserving] Connecticut jobs," Blumenthal said.

"I think it's fair to say, without telling you [exactly] what they said, none of the chief executives who met with me, said, in effect: We need this merger in a struggle to stay alive."

Blumenthal said when you look at the past history of mergers in Connecticut, such as Citigroup buying Travelers, it led to job eliminations. Before the merger, Travelers had 7,000 people in Connecticut; it had 5,900 three years later.

Because of that, Blumenthal believes that there will be more insurance jobs -- and higher level jobs -- in Connecticut "if the merger is either abandoned or defeated. I am going to continue to work with all of these companies in seeking to build their employment base, and promote their success and hiring, because I believe strongly that they are profoundly significant job providers, and I think they could do more."

If the Anthem-Cigna deal falls apart, it's not likely to lead to job losses in Bloomfield, said Jason McGorman, a Bloomberg Intelligence senior equity analyst who covers health care.

"If Cigna and Anthem don't pair up, it's not like they're in a terrible position," he said. "I don't think the commercial markets they're in really change that much."

McGorman said the biggest risk to Cigna's near future isn't whether the deal goes through, but whether Cigna is able to satisfy regulators at the Centers for Medicare and Medicaid Services. In late January, CMS told Cigna it would not be allowed to enroll new customers in either Medicare Advantage or Medicare Part D prescription plans until further notice. The agency said the company repeatedly "inappropriately denied medical services" to customers and it also was inappropriately restricting prescriptions, even after it had received warning letters.

While current customers can stay with the company, open enrollment for Medicare Advantage begins October 15, so Cigna only has three more months to satisfy regulators that problems won't recur.

"It's not that far away," McGorman said. He said while he doesn't know how frequently customers switch providers, the number of people reaching 65 each year has been growing, and if Cigna's unable to sign up any of them for 2017, "then they're going to lose some market share to other players."

Blumenthal declined to say if he had lobbied CMS on Cigna's behalf. "I will continue to advocate for them when it's appropriate," he said.

Even if Cigna doesn't end up with another billion dollars, it has plenty of cash on hand to make purchases of its own.

Gupte said Cigna is unlikely to try to sell itself to a new suitor.

The large insurers that analysts think are attractive targets to Cigna are companies that rely primarily on Medicaid managed care contracts. They include family-owned Molina, Wellcare and Centene.

McGorman said it's not clear that Cigna would want to buy any of those companies, however. Medicaid contracts have much lower profit margins than serving large companies that are self-insured, selling health insurance to employers or Medicare Advantage.

Cigna's stock price reflects skepticism about the deal from investors. Cigna's stock closed Tuesday at $125.21, down from $136 before rumors began that Cigna would be acquired.

"It's definitely having underperformance because of the antitrust concerns," McGorman said.

Gupte wrote in a note to investors that the Cigna stock is undervalued and she would recommend buying it up to $155 a share.

McGorman said Cigna stock sold for just $42 a share at several points in 2011. For it to have tripled in five years is a credit to CEO David Cordani. "They've done a fantastic job, and I think investors know that," he said.

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