Anthem Agrees to Buy Cigna for $48 Billion

By Dana Mattioli, Anna Wilde Mathews and Chelsey Dulaney 

Anthem Inc. agreed to buy Cigna Corp. for more than $48 billion in a transaction that, along with a previously proposed combination of rivals, could reshape the U.S. health industry.

Under the deal's terms, Indianapolis-based Anthem would pay $188 a share for Cigna, of Bloomfield, Conn. The deal was reported first by The Wall Street Journal earlier this week.

The tie-up of Anthem and Cigna would accelerate the rapid-fire reconfiguration at the top of the U.S. managed-care industry. The biggest companies are seeking more cost efficiency and scale as the health-care landscape changes because of the Affordable Care Act and other factors.

The expected deal follows by about three weeks Aetna Inc.'s agreement to buy Humana Inc. for $34 billion. In a sign of the takeover frenzy among big health insurers, Cigna also vied for Humana but failed to arrange a cash-heavy offer that Humana had requested, people familiar with the matter said.

Of the five largest health insurers, only UnitedHealth Group Inc., the largest by revenue, is sitting out the merger wave, at least so far.

There is no guarantee that regulators would bless either deal, and legal experts have said regulators are likely take a close look at both.

An agreement between Anthem and Cigna caps off a monthslong, sometimes contentious back-and-forth between the companies, with Anthem at one point going public with its offer.

The two health insurers began holding talks about a combination last summer, but the talks broke down over issues such as who would run a combined company. A particular point of contention has been the role Cigna Chief Executive David Cordani would play, including if and when he would run it. In June, Cigna rejected a $47.5 billion offer from Anthem, worth $184 a share, calling it "inadequate and not in the best interests of Cigna's shareholders."

Cigna shares closed Thursday at $154.36, giving it a market value of about $39.7 billion. Anthem closed Thursday at $155.21, giving it a value of about $41.1 billion.

Anthem and Cigna now are the second- and fifth-largest health insurers by revenue.

By buying Cigna, Anthem would marry two companies with a huge footprint in commercial insurance, the type of coverage provided to employers and consumers. Anthem, which is a Blue Cross and Blue Shield plan in 14 states, has a commanding presence, particularly in individual and small-employer plans, but also is a major player in serving large, multistate employers, which it does in partnership with other Blue-plan companies around the country.

Cigna is known for its focus on administering coverage for large employers, as well as a burgeoning overseas presence. With its 2012 acquisition of HealthSpring, Cigna also bolstered its Medicare business, which currently includes nearly 500,000 members. Anthem has 618,700 people enrolled in its Medicare Advantage plans, the private-insurer version of the federal program.

Anthem has said the combined entity would cover approximately 53.2 million people, with 66% of them in self-insured employer plans administered by the company, 15% in traditional commercial insurance, 11% in Medicaid and 4% in Medicare.

Anthem Chief Executive Joseph Swedish has said the Cigna deal could generate nearly $2 billion in annual synergies, which generally refer to cost savings from eliminating overlap, adding that the combined company would have "the scale to drive greater efficiency and affordability for our customers."

The rapid reshuffling of the industry will likely present a challenge for the Obama administration, which views the health law as its signature domestic achievement. Antitrust regulators are expected to closely examine the implications of the two tandem deals and a third, smaller transaction announced earlier this month.

The Cigna deal, coming so soon after Aetna's announcement, could up the ante for regulators at both the state and federal levels. Analysts at Goldman Sachs Group Inc. looked at the coverage market for big, multistate employers and concluded that antitrust regulators might potentially consider it already on the borderline of concentrated, even before a merger of Cigna and Anthem.

But the analysts saw little or no risk of potential divestiture for an Anthem-Cigna combination in the Medicare Advantage, individual or small-group business.

A recent survey of large and midsize employers by Aon PLC's Aon Hewitt found that 46% expected a negative impact from health-insurer consolidation, while 21% saw cost advantages in the deals and one-third didn't expect to be affected by them.

Among employers' concerns are the possibility that integration could be disruptive to service and the shrinking number of options available, said Jim Winkler, a senior vice president at Aon Hewitt. "Losing a potential vendor choice is something they view as a negative," he said.

Anthem might also face challenges because of its role as a licensee of the Blue Cross Blue Shield Association. To use the Blue brands, Anthem must adhere to the association's rules. According to Anthem's annual report filed with the Securities and Exchange Commission, the requirements include that two-thirds of a licensee's national net revenue from health plans and related services must stem from Blue-branded business.

Anthem's Mr. Swedish has said the company is "confident in our ability to obtain regulatory approvals," including from the Blue association, and that "no substantive antitrust or insurance regulatory issues are present that would prevent completion of the transaction."

Write to Dana Mattioli at [e-mail], Anna Wilde Mathews at [e-mail] and Chelsey Dulaney at [e-mail]

Access Investor Kit for Aetna, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US00817Y1082

Access Investor Kit for Cigna Corp.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US1255091092

Access Investor Kit for Humana, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US4448591028

Access Investor Kit for UnitedHealth Group, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US91324P1021

Subscribe to WSJ: http://online.wsj.com?mod=djnwires