Cigna Calls Off Humana Pursuit, Plans Big Stock Buyback
Health-insurance providers couldn’t agree on financial terms for deal that would have created $140 billion giant
Cigna Group abandoned its pursuit of a tie-up with Humana after shareholders balked at a deal that would have created a roughly $140 billion giant in the health-insurance industry.
The companies couldn’t come to agreement on price and other financial terms, according to people familiar with the matter. In the near term, Cigna is turning its focus toward smaller, so-called bolt-on, acquisitions.
The Wall Street Journal reported late last month that Cigna and Humana were discussing a combination that could have been struck by year-end. The potential structure of a deal couldn’t be learned then, but it turns out that Cigna would have been acquiring Humana in a cash-and-stock transaction with a large stock component, the people said.
Shareholders reacted coolly, with Cigna stock dropping nearly 10% since the talks surfaced as questions swirled about the wisdom of using the company’s stock as currency, among other concerns.
Instead, Bloomfield, Conn.-based Cigna said Sunday that it plans an additional $10 billion of stock buybacks, bringing its total planned repurchases to $11.3 billion. It made no comment on the Humana talks.
“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,” Cigna Chief Executive David Cordani said in a statement.
Cigna continues to believe in the merits of a combination with Humana, the people said. The combined company would have been focused on improving access to care and lowering costs for consumers, they said.
Cigna also believes a deal would have been achievable from a regulatory perspective despite the current administration’s tough stance on mergers and acquisitions.
The company intends to use the majority of its discretionary cash flow for share buybacks next year, including repurchasing at least $5 billion of stock between now and the end of the first half.
A merger of the managed-care providers would have been huge. Even after the stock-price declines, Cigna had a market value of roughly $76 billion as of Friday, while Humana’s stood at about $59 billion.
A deal would have given the pair scale to rival that of UnitedHealth Group and CVS Health and vault the combined company into the top tier of integrated healthcare providers.
Cigna and Humana have held talks on and off for years. They previously discussed a transaction in 2015, but Humana instead struck a deal with Aetna. That wound up being blocked by a judge, leaving Aetna to be scooped up by CVS in 2018. Another deal that would have combined Cigna with Anthem, now known as Elevance Health, also died after an adverse antitrust ruling.
Cigna, which focuses largely on commercial insurance—the type provided by employers and bought by individuals—continues to explore the sale of its Medicare Advantage business, which could fetch several billion dollars in a divestment.
Selling its Medicare business, while halting its pursuit of Humana, could leave Cigna shut out of an important and growing part of the insurance business that is favored by investors. Cigna has long lagged behind the top contenders in the business in terms of size and scale.
Cigna’s $54 billion acquisition of Express Scripts Holding in 2018 made it one of the biggest players in pharmacy benefits, and it has been building up its Evernorth health-services unit, which includes an array of non-insurance businesses.
Louisville, Ky.-based Humana, the No. 2 Medicare insurer, is in the midst of a succession handoff—often an opportune time for would-be acquirers to pounce. Humana said in October that Jim Rechtin—previously chief executive of Envision Healthcare—would take over as president and chief operating officer, effective Jan. 8. Rechtin was then to take over as CEO from Bruce Broussard in the back half of 2024.
The abandoned deal talks between Cigna and Humana offer yet another sign of how tough the M&A market has been this year, beset by high interest rates, concerns over the direction of the economy and greater antitrust scrutiny.
Merger volume in the U.S. is down 14% so far this year, at about $1.2 trillion, according to Dealogic. While healthcare is usually one of the top industries in terms of generating merger activity, the two biggest transactions of the year thus far have both been in the energy sector: Exxon Mobil’s $60 billion agreement to acquire Pioneer Natural Resources and Chevron’s $53 billion deal for Hess.
Anna Wilde Mathews contributed to this article.
Write to Lauren Thomas at lauren.thomas@wsj.com