After its acquisition deal with Anthem (ANTM, Financial) was foiled by antitrust regulators last year, health insurer Cigna Corp. (CI, Financial) announced Thursday it is buying pharmacy benefits manager Express Scripts Holding Co. (ESRX, Financial) for $67 billion.
The announcement follows a deal between Aetna (AET, Financial) and CVS Health (CVS, Financial), which was announced in December, and the recent combined initiative of Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), JPMorgan (JPM, Financial) and Amazon (AMZN, Financial) to tackle the mounting costs of health care for their employees.
According to the terms of the cash and stock deal, which includes approximately $15 billion in debt, the Bloomfield, Connecticut-based health insurance company will pay $48.75 in cash and 0.2434 shares per Express Scripts share. That is approximately $96.03 per share total, a nearly 31% premium to the St. Louis-based company’s closing price on Wednesday.
Upon the close of the deal, Cigna shareholders will own approximately 64% of the combined company. Express Scripts shareholders will own the remainder.
In a statement, David M. Cordani, president and CEO of Cigna, said combining the two companies will “drive greater quality and affordability for customers” as health care costs rise.
“This combination accelerates Cigna’s enterprise mission of improving the health, well-being and sense of security of those we serve and, in turn, expanding the breadth of services for our customers, partners, clients, health plans and communities,” he said. “Together, we will create an expanded portfolio of health services, delivering greater consumer choice, closer alignment between the customer and health care provider and more personalized value.”
Express Scripts President and CEO Tim Wentworth echoed similar sentiments, emphasizing it delivers attractive value to shareholders and customers alike.
"Together, our two organizations will help make the healthiest choices the easiest choices, putting health and pharmacy services within reach of everyone we serve,” he said. “Adding our company's leadership in pharmacy and medical benefit management, technology-powered clinical solutions and specialized patient care model to Cigna’s track record of delivering value through innovation, we are positioned to transform healthcare."
The combined company, which will be called Cigna, will be headquartered in Bloomfield and led by Cordani. Express Scripts will remain in St. Louis. Both companies said they will invest an incremental $200 million in charitable organizations in their respective communities after the deal is finalized.
Cigna says it expects the deal to close by the end of the year.
Following the announcement, Cigna shares were down more than 9% Thursday morning at $175.32, while Express Scripts gained nearly 12% to $81.93.
GuruFocus data shows Cigna gained 52% in 2017, while Express Scripts rose 9%. Year to date, Cigna has lost 14% while Express Scripts has climbed 9%.
Of the gurus invested in both companies, Dodge & Cox has the largest position in each. Other top guru shareholders of Cigna include Larry Robbins (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Alan Fournier (Trades, Portfolio), George Soros (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio), among others.
Express Scripts’ top guru shareholders include Chris Davis (Trades, Portfolio), Pzena, Seth Klarman (Trades, Portfolio), Charles Brandes (Trades, Portfolio), Jeff Ubben (Trades, Portfolio), Greenblatt, Ken Fisher (Trades, Portfolio), Jeff Auxier (Trades, Portfolio), David Rolfe (Trades, Portfolio) and several others.
Disclosure: No positions.
