Anthem's Sweetened Bid For Cigna Heats Up Consolidation Race

(RTTNews) - Anthem Inc (ANTM)'s sweetened $54 billion bid for smaller rival Cigna Corp (CI) comes at a time when the health insurance sector is poised for consolidation and players seek to better benefit from the Affordable Care Act.

On Saturday, Anthem said it offered a non-binding proposal to buy Cigna for $184 per share in cash and stock, valuing the company at $53.8 billion on an enterprise basis.

Anthem has been seeking a deal for Cigna since August and had already submitted three bids this month, starting at $174 per share. Anthem is now going public with its offer of $184 per share.

A main stumbling block for a deal has been over the future role that Cigna's Chief Executive Officer David Cordani will have in the combined company; that somewhat explains Anthem's going public with its offer.

Anthem said its offer represented a 35 percent premium to Cigna's closing price on May 28, when shares of some health insurers surged on merger rumors.

Shedding light on management issues, Anthem said its CEO Joseph Swedish would lead the combined company for two years, and Cordani would be president and chief operating officer. After that, Cordani would be a candidate for CEO position, but that is not guaranteed, Anthem said.

Anthem said its combination with Cigna would have $115 billion in annual revenue and serve 53 million members. That would make it bigger than industry leader UnitedHealth Group Inc in terms of membership.

A combination would create a premiere health benefits company with critical diversification and scale to lead the transformation of health care delivery for consumers, Anthem said.

Anthem expects the combination would be accretive to operating earnings per share and that the combined enterprise would generate significant cost synergies.

The company also expects to achieve adjusted earnings per share accretion of greater than 10 percent in year one, with the accretion more than doubling by year two following the closing of the transaction.

The combined company would reflect a pro forma equity ownership comprised of about 76.3 percent Anthem shareholders and about 23.7 percent Cigna stockholders.

Anthem said it is confident in its ability to obtain regulatory approvals.

Meanwhile, Cigna has been reportedly pursuing a deal of its own for Humana Inc (HUM). Among others in the industry, UnitedHealth has been reported to have approached Aetna Inc (AET) for a merger.

The moves reflect the dynamics underlying the health insurance industry. Companies are seeking to consolidate to better take advantage of rising revenues from the Affordable Care Act and the growing privatization of Medicare and Medicaid.

ANTM closed Friday at $165.06, down $0.18 or 0.11%, on the NYSE. In after hours, the stock gained $0.18 or 0.11% at $165.24.

CI closed at $155.26, down $1.15 or 0.74%, on the NYSE. In after hours, the stock gained $1.14 or $0.73% at $156.40.