Anthem to buy Cigna for $54B in mega insurance merger

July 27 01:24 2015

The health care insurance industry’s consolidation rush is accelerating with insurance giant Anthem’s (ANTM) deal to acquire Cigna (CI) in a transaction valued at $54.2 billion. Anthem on Friday confirmed that it has reached a deal to buy Cigna, creating a mammoth for-profit insurer with annual revenues of more than $115 billion and more than 53 million insured patients.635699710046601417-AP-Anthem-Hack

Together, the insurers represent about 17% of the U.S. population. Their tieup follows weeks of intense negotiations, with Cigna at one point publicly rejecting Anthem’s entree. But Anthem CEO Joe Swedish and Cigna CEO David Cordani said on a conference call that they had ironed out their differences. Anthem’s offer got a little sweeter, and the executives negotiated a explicit power-sharing agreement.

Swedish will retain his titles of chairman and CEO of Anthem, while Cordani will become president and chief operating officer. “This transaction better positions us to serve the evolving health care market with increased participation by individual consumers and growth in the government business and the need for solutions that advance affordability, choice and quality,” Swedish said.

Still, significant concern remains regarding the executives’ ability to pull off the merger successfully — and whether the deal is good for consumers. “It could make health care more affordable because it gives them more leverage to negotiate with providers of care, which enables them to drive a tougher bargain and that should be translated back into better premiums for consumers,” said Marianne Udow-Phillips, director of the Center for Healthcare Research and Transformation at the University of Michigan, in an interview.

Anthem has 52,000 employees, $78.5 billion in annual revenue and 38.5 million members, while Cigna has 37,000 employees, $36.5 billion in revenue and 14.5 million members. Anthem already runs Blue Cross and Blue Shield insurance plans in 14 states and Medicaid offerings through the Amerigroup brand in 19 states. Swedish says the companies are approaching the deal with “eyes wide open on the challenges” of combining their enormously complex businesses. He said the combined company would shed $2 billion in costs within two years of the deal’s closing, though he didn’t specify where those cuts would occur.