Anthem Raises Offer for Cigna to $54 Billion -- 3rd Update

By Dana CimillucaDana Mattioli, and Liz Hoffman 

A five-way takeover frenzy broke out into the open over the weekend, with Anthem Inc. taking its $47.5 billion bid to buy Cigna Corp. public in a contentious move that shows the pressure the big health insurers are under to quickly find merger partners.

Anthem said Saturday it has offered $184 in cash and stock for Cigna, making the bid public to influence Cigna through its shareholders, according to a person familiar with the matter.

On Sunday, Cigna said it rejected the offer, calling it "inadequate and not in the best interests of Cigna's shareholders." A key point of contention involves who would run the combined firm.

Anthem's pursuit of Cigna comes as Cigna as well as Aetna Inc. size up Humana Inc., which has privately offered itself for sale. Aetna in the past few days made a takeover proposal to Humana, which has a market value of $30 billion, said people familiar with the overture. UnitedHealth Group Inc., meanwhile, recently made a takeover approach to Aetna.

The five big managed-care companies are jockeying for deals that will enable them to become more efficient and better respond to changes in the health-care landscape in the U.S. brought on by the Affordable Care Act and other developments. Analysts say it is likely regulators will allow only one or two such combinations, so the firms are racing to be the first ones to find merger partners.

The back and forth that broke out this weekend shows that Anthem, based in Indianapolis and until last year known as WellPoint, made a number of bids for Cigna privately in June. Those details were in a letter Anthem Chief Executive Joseph Swedish sent to Cigna's board that Anthem released that day. Among other things, it revealed disagreements between the two sides over the role Cigna CEO David Cordani would play in a combined company. He wants to be CEO, if not immediately then after a period of time, which Anthem refuses to guarantee.

In its response, delivered Sunday in a public letter from Mr. Cordani and Cigna Chairman Isaiah Harris to Anthem's board, Cigna indicated it's not in principle opposed to the tie-up. Nevertheless, it said, "We are deeply disappointed with your recent actions. We have been engaged in good-faith discussions with Anthem to determine whether a potential strategic combination is in the best interests of Cigna's shareholders."

It called Anthem's idea of putting Mr. Swedish in charge of the combined company and the integration "disconcerting and risky." Rather, Cigna says integrating the two companies should be a "joint and collaborative" endeavor.

The Journal had reported last week that Anthem was pursuing Cigna, that it had bid about $175 a share, which was rejected, and that Mr. Cordani's potential role was a sticking point.

Anthem, for its part, said it has been in negotiations with Cigna since August 2014, and it bemoaned what it called its rival's refusal to "reasonably negotiate." It said the governance demands Cigna is making are excessive, given the premium Anthem says it is offering.

Anthem said it submitted four bids in June, and that the most recent, of $184 a share, was made on Thursday. Shares of Cigna, which is based in Bloomfield, Conn., closed Friday at $155.30, giving the company a market value of $40 billion.

A combination would create a big competitor in the commercial health-insurance business, with strong positions among individual, small-business and big-employer clients. It would vault Anthem, the nation's second-largest health insurer, closer to UnitedHealth in size. Cigna's revenue last year totaled $34.9 billion, while Anthem's was $73.9 billion.

UnitedHealth had revenue of $130.5 billion, including its health-services arm, Optum, while Aetna's was $58 billion and Humana's was $48.5 billion.

Anthem is a significant competitor in the individual and small-group markets in the 14 states where it holds the rights to be the Blue Cross and Blue Shield insurer. It also has a strong role among national employers. Cigna, meanwhile, focuses closely on self-insured commercial business and has a significant and growing position overseas.

A merged company would have a bigger presence in the fast-growing Medicare Advantage market, an area where both companies have lagged behind competitors. Together, Anthem and Cigna would have more than a million Medicare members. Anthem also has a major presence in Medicaid.

An attempt to seal an Anthem-Cigna merger could be complicated by Anthem's role as a Blue Cross and Blue Shield insurer, however, which Cigna also highlighted in its letter. The Blue Cross and Blue Shield plans hold geographic rights to use the Blue brand only in a particular area, and they also agree to certain limits on their non-Blue business.

It is unclear how Anthem would manage the legacy Cigna business in states where another insurer is the local Blue. In its letter, Anthem said it was "confident in its ability to obtain regulatory approvals" and this "includes matters related to the Blue Cross Blue Shield Association."

Cigna countered by highlighting potential complications arising from Anthem's affiliation with the Blue system, including litigation against it. It also noted a data breach Anthem experienced in February.

Humana has held sale talks with companies including Cigna and Aetna, people familiar with the matter have said.

Humana, based in Louisville, Ky., gets the bulk of its revenue from its business administering the private version of the federal Medicare program. The company is seen as a prize because of its powerful Medicare franchise, which is growing rapidly as baby boomers age into eligibility and opt for these plans, known as Medicare Advantage.

Write to Dana Cimilluca at [e-mail], Dana Mattioli at [e-mail] and Liz Hoffman at [e-mail]

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