America’s second largest medical insurance provider, Anthem Inc. has finally struck a $48.4 billion deal with rival Cigna Corp. The deal wraps up nearly one year of negotiations.
The merger combines the second and fourth-biggest insurers in the United States. Anthem currently services 38.5 million medical clients, while Cigna has 14.7 million. When combined they will become the biggest insurer in the United States. UnitedHealth Group Inc currently services 53 million members.
Anthem and Cigna engaged in acquisition costs at a time when the entire medical insurance industry is going through a wave of rapid consolidation. Aetna Inc. recently agreed to buy Humana Inc. for $35 billion, just one day after Centene Corp. struck a $6.3 billion deal for Health Net Inc.
Many analysts believed such mergers would occur after the Affordable Health Care act placed more restrictions on the health care industry, a move that forced major medical insurers to seek new profits.
The $48.4 billion deal will give Cigna shareholders $103.40 in cash and 0.5152 Anthem shares for each Cigna share.
Following news of the agreement, Cigna shares gained nearly one percent to $154.92. Anthem shares were also up one percent.
“It was a reasonably good price to begin with,” Ana Gupte, an analyst at Leerink Partners in New York, said before the announcement. “Shareholders were happy with $184 even. And they were telling Anthem and Cigna to resolve their differences and get the deal done.”
Anthem says the deal will increase adjusted earnings per share by almost 10 percent in the first year, with the accretion more than doubling in the second year.
Once combined the company’s plan to reduce $2 billion in costs in the first two years after the deal closes.
Pending any regulatory issues, the deal is expected to close in the second half of 2016.
Joseph Swedish, Anthem’s chief executive officer, will run the combined company, according to the statement. David Cordani, Cigna’s 49-year-old CEO, will be president and chief operating officer. Cordani and four independent directors from Cigna’s board will join the nine current members of the Anthem board.