Express Scripts and Cigna were exploring deals with other companies before agreeing to merger

May 17--Before agreeing to a $67 billion acquisition deal in March, both Cigna and Express Scripts were exploring mergers -- to various degrees -- with other health care companies, according to a merger proxy filed Wednesday.

The proxy filing reveals a series of meetings of top executives over months prior to the announcement earlier this year that St. Louis' largest public company would be acquired.

It's unclear which companies the two were in talks with because the filing does not disclose names, but it identifies the three entities only as large, publicly traded companies in the health care industry.

Cigna was still considering a deal with another company just two months before agreeing to initial terms with Express Scripts, according to the filing.

In the summer of 2017, about nine months prior to the consummation of a deal between Bloomfield, Conn.-based health insurer Cigna and St. Louis County-based Express Scripts, the two were contemplating the future of their businesses and long-term strategy.

At the time, Cigna was coming off a failed $48 billion bid to merge with its competitor, insurance giant Anthem Inc., based in Indianapolis.

And Express Scripts had recently announced that it expected to lose its largest client, Anthem Inc., which is also the nation's second-largest insurance company.

Express Scripts provides prescription drugs to millions of Americans as one of the largest pharmacy benefit management firms in the country.

As Cigna was just beginning its conversations of a possible merger with another company, Express Scripts had ended its merger discussions with a large, publicly traded company in the health care industry, according to the filing.

On Oct. 30, senior executives from both Cigna and Express Scripts met in St. Louis to discuss their existing business relationship and other possible opportunities, according to the filing. Tim Wentworth, CEO of Express Scripts, was present, along with Cigna's chief financial officer, Eric Palmer.

Before the meeting, Cigna's board and management had reviewed detailed analyses of possible mergers to consider including a tie-up with Express Scripts and the other unnamed company.

During the Oct. 30 meeting, the two teams discussed a packaging deal, described in the filing as a "white label" arrangement.

The idea was for Express Scripts to fill prescriptions for Cigna members and place the Cigna logo on the prescription bottles and bags instead of using Express Scripts' name and logo, according to Brian Henry, spokesman for Express Scripts.

November arrived and executives and board members on the finance committee at Cigna continued discussions about pursuing a deal with either Express Scripts and the unnamed company, according to the filing.

Five days later, on Nov. 20, Wentworth and his chief financial officer, Jim Havel, flew to Cigna's headquarters in Connecticut for a meeting with Cigna CEO David Cordani, CFO Palmer and Christopher Hocevar, a Cigna executive in charge of strategy.

The plan was to talk about "potential future business relationships, including as customers of each other."

Despite convening a meeting between the two companies' top officials, the filing does not yet mention any discussion about a potential merger at this time.

However, about two weeks later, Cordani was on a flight to St. Louis to talk to his counterpart at Express Scripts about buying the company.

Wentworth said the company was not for sale.

He said he and the board believed in "Express Scripts' ability to remain successful as a standalone health care company."

But he said the company would consider the offer and that the two would need to review each other's operations to even consider a potential tie-up.

On Dec. 8, Wentworth brought the news to George Paz, board chair and former longtime chief executive of Express Scripts.

On that same day, Express Scripts was evaluating other options with another company. On Dec. 8, Havel, Express Scripts CFO, met with the executives of another large, publicly traded company in the health care industry "to discuss common business interests and the current landscape of the health care industry," according to the filing.

The company is unnamed in the filing.

On Dec. 13, Express Scripts' board of directors met and discussed an array of matters, including Cigna's interest in buying the company. The board also discussed the speed of change occurring in the industry, including news of the impending merger of CVS and Aetna and the potential entry of new competitors.

Although it is not said in the filing, that's likely a reference to Amazon following reports at the time that it was looking to jump into the industry.

A few days later, Cordani called Wentworth to go through the next steps but also explained why he thought the deal made sense.

During the call, Wentworth shared reservations the board had, including the seriousness of Cigna's intent to buy the company and the risk to his business if the deal would later fail.

On Dec. 21, Cordani and Wentworth and other senior executives met in White Plains, N.Y., to exchange information about each other's companies.

Days after Christmas, the teams met again, this time in Chicago to discuss everything from financial and operating information to company culture. Wentworth and Cordani met separately to discuss other items, including transaction details.

On Jan. 8, Cigna's board of directors agreed to the price it was willing to pay to buy Express Scripts, between "$87 and $89 per share of Express Scripts common stock, with the merger consideration comprised of a mix of cash and Cigna common stock."

The time came when Cigna's board of directors needed to decide whether to pursue a deal with Express Scripts or the other unnamed company it had been having ongoing conversations with since the summer.

The board decided that its financial returns with the unnamed company were "significantly less compelling than a combination with Express Scripts," according to the filing.

Cigna's board decided Express Scripts would be its number one priority.

On Jan. 9, Cordani and Wentworth met in San Francisco to talk pricing terms and the potential structure of the combined business. The proposal letter, delivered to Wentworth and addressed to the board, committed to maintaining a significant presence in St. Louis and retaining the Express Scripts name and branding.

But on Jan. 15, after reviewing the terms, Express Scripts' board of directors rejected Cigna's initial proposal. The price was "insufficient," according to the filing.

On Feb. 17, Cigna sent a second offer, increasing the offer price to $93 per share and included an offering to have three Express Scripts board members on the combined company's board.

The next day, Wentworth told Cordani the board would likely be disappointed with the offer.

Express Scripts' board sent a counterproposal, which included a price of $102 per share, to be paid through a mix of 55 percent cash and 45 percent Cigna common stock.

Cigna then sent its best and final offer that included a price of $97.50 per share, comprised of a mix of 50 percent cash and 50 percent Cigna common stock.

Cordani and Wentworth met in Dodge City, Kan., on Feb. 27 to hash out the details of the two proposals.

On March 2, Express Scripts received an initial draft of a merger agreement.

The two exchanged numerous drafts until the deal was publicly announced on March 8.

___

(c)2018 the St. Louis Post-Dispatch

Visit the St. Louis Post-Dispatch at www.stltoday.com

Distributed by Tribune Content Agency, LLC.