Cigna surges on $10 billion buyback after ending Humana merger talks

Updated at 7:35 am EST

Cigna Group (CI) - Get Free Report shares surged in early Monday trading following reports that the health insurance group would abandon plans to merge with smaller rival Humana (HUM) - Get Free Report.

Cigna late last month was linked to merger talks with Humana. The deal would have created one of the largest U.S. health insurers and challenged the market dominance of UnitedHealth (UNH) - Get Free Report.

Instead, Cigna will focus on returning cash to investors through a $10 billion buyback, according to reports from both the Wall Street Journal and Reuters.

Reuters reported the pair couldn't agree on a merger price and haven't given up on the idea of resuming talks in the future. But the news service noted that Cigna late Sunday unveiled plans to boost its share-buyback authority to $11.3 billion, with the aim of purchasing at least $5 billion by the first half of next year.

"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," said CEO David Cordani.

"As we look at the broader landscape and the strategic opportunities before us, we will remain financially disciplined with a clear focus on executing against our strategy, delivering value for our shareholders, and investing in our future," he added. "In light of the current environment, we will consider bolt-on acquisitions aligned with our strategy, as well as value-enhancing divestitures."

Cigna shares were marked 11.5% higher in pre-market trading to indicate an opening bell price of $293.00 each while Humana shares were up 2.1% at $491.79 each.

FTC would closely review Cigna-Humana tie-up

Cigna posted a better-than-expected benefit-expense ratio of 80.5% for the three months ended in October, and lifted its full-year profit forecasts. That was thanks in part to solid revenue gains from its commercial insurance unit and an 8% gain in sales for its Evernorth Health pharmacy benefits management division.

Humana, meanwhile, last month echoed concerns expressed by UnitedHealth over the summer that older Americans who had postponed elective surgeries during the covid pandemic were now seeking treatments. That trend could elevate costs and weigh on profit margins.

The group's benefit-expense ratio, which tracks payouts on claims against collected premiums, rose by more than a percentage point from a year earlier to 86.4%.

A big impediment to any potential tie-up between Cigna and Humana would likely come from the Federal Trade Commission, which has taken a far more active role in challenging megamergers under the leadership of Lina Khan.

The FTC has, in fact, cautioned the three largest pharmacy-benefit managers – CVS's Caremark, Cigna's Express Scripts and UnitedHealth's OptumRx – of likely changes to the industry's broader regulation.

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