However, the two sides remain far apart on several issues, namely who would lead the combined conglomerate and whether Anthem could secure the necessary regulatory approvals. Many observers ultimately believe the pressure will be too great for Cigna to turn its back on the offer. The stock market has also rallied behind the testy negotiations, as shares of Anthem, Cigna and several other insurers soared Monday morning.
Anthem CEO Joseph Swedish reiterated the company's position to investors and reporters Monday. Indianapolis-based Anthem publicly offered to buy Cigna Saturday for $184 per share in cash and stock (about $47.5 billion) and assume Cigna's debt, valuing the deal at almost $54 billion. But Cigna, headquartered in Bloomfield, Conn., quickly rejected the unsolicited offer and “expressed frustration with the current state of our discussions,” which have been ongoing privately since last August.
The deal is reminiscent of the heated merger talks between Kindred Healthcare and Gentiva Health Services from last year. Swedish said Anthem decided to go public with its offer because the company wanted to get shareholders involved. He did not say if Anthem would make any kind of hostile takeover offer by buying Cigna stock.
“We have provided a clear, comprehensive and compelling offer,” Swedish said Monday. “We just felt that the process was not developing in a way that we felt would be coming to an end that best represented the interests of the shareholders.”
But Cigna voiced several “fundamental concerns” in a response letter Sunday, which has catapulted negotiations into a back-and-forth war of words. Cigna said Anthem did not respond to questions surrounding Anthem's mass-scale data breach earlier this year that affected almost 80 million people. Cigna CEO David Cordani also wants to be the top executive of the new company, but Anthem rebuffed that proposal and gave no guarantees Cordani would succeed Swedish if and when Swedish retires.
One of Cigna's largest concerns involved regulatory approval and antitrust lawsuits against Anthem's parent group, the Blue Cross and Blue Shield Association. Anthem would have to receive approval from the BCBSA because the association limits how much of a licensee's business can be branded outside of the Blues and how the company can compete with other independent Blues plans. Lawsuits against the BCBSA allege the plans collude to create monopolies in different healthcare markets.
“We have attempted to engage in dialogue so that we can understand and consider these issues,” Cordani and Cigna Board Chairman Isaiah Harris Jr. wrote. “Unfortunately, you have continued to avoid addressing these key concerns and have failed to demonstrate what has changed over the past few months.”
Anthem expressed clear optimism that it would resolve any demands from the BCBSA. “We have vetted this very carefully,” Swedish said. “We are more convinced than ever that we will navigate our way through some of these Blues rules.”
A BCBSA spokesman declined to comment on the Anthem-Cigna negotiations.
Financial analysts and insurance executives have long expected consolidation in the health insurance industry. The Affordable Care Act is encouraging insurers to get bigger, and they are also looking to gain back some price negotiation leverage over hospitals, which have rapidly consolidated.
If it comes down to a staring contest, some believe Cigna will blink first because of the big price tag Anthem is willing to pay. Swedish said he was not aware of any other bidders for Cigna.
“Given the attractive premium offered by Anthem, we ultimately believe Cigna's board will have to say yes even if Cordani can't be guaranteed the corner office at Anthem,” David Windley, an analyst at Jefferies, wrote in a research note. “The alternatives are more risky and less attractive.”
Anthem's shares were up more than 4.2% in Monday morning trading at $172 a share. Cigna's stock shot up more than 5.7% to $164 per share.