Business Essentials for Professionals


$54 Billion Deal For Express Script Buyout By Health Insuring Company Cigna

$54 Billion Deal For Express Script Buyout By Health Insuring Company Cigna
In a move that is reflective of the impetus for restructuring in the insurance companies to reduce cost pressures by growing bigger, pharmacy benefits manager Express Scripts Holding Co was announced to by bought by U.S. health insurer Cigna Corp for a proposed deal worth about $54 billion.
Last December, the merger of CVS Health Corp – a rival of Express Scripts and insuring company insurer Aetna Inc worth $69-billion was also reflective of the pressures within the industry to achieve sustainability through expansion.
Savings of about $600 million would result due to administrative efficiencies from the combination, said the companies. Greater coordination of pharmacy and medical claims would result from the merger. The new entity would get greater leverage in price negotiations with drugmakers.
The company said that the $67 billion would be the value of the transaction which would include debt of $15 billion of Express Scripts.
Coordinating with pharmacies and processing claims, pharmacy benefit managers negotiate deals with drug manufacturers and implement program for prescription drug for government agencies, self-insured companies and health insurers.
A deal was being expected to be done by Cigna following the cancellation of its proposed buyout by Anthem Inc by antitrust regulators about two years ago.
Compared to the biggest health insurer of the industry - UnitedHealth Group Inc, the Cigna model would be similar after the combination with ExpressScripts. Evercore ISI analysts said in a research note that Cigna would potentially loose the business of managing its pharmacy benefit which is currently done by UnitedHealth’s Optum division.
Experts viewed the CVS-Aetna deal to be one that would put pressure on competing insurers, drugmakers, PBMs and retail pharmacies for contemplating mergers or changing partner companies in an effort to maintain the possible costs savings for healthcare or enhancement of profit margins.
There are a number of imminent threats to the sector which includes competition from Inc., enhanced drug prices and alterations of the U.S. Affordable Care Act which has created ripples in the business. This has resulted in a series of consolidation in the industry.
Because Cigna had earlier expressed satisfacti0on about the agreement that it had with UnitedHealth’s Optum unit with respect to its PBM, therefore the deal has surprised many, said Leerink Partners analyst Ana Gupte.
“It is possible that the threat of an Amazon entry into the healthcare and possibly the drug supply-chain landscape, with the latest news of the Amazon/Berkshire Hathaway/JPMorgan employer coalition, has spurred Cigna and Express Scripts to tie the knot.”
A company was announced to be formed for their companies by JPMorgan Chase & Co, Amazon and Berkshire Hathaway Inc. The announcement for the same was made in January.
While 64 per cent of the new company would be owned by shareholders of Cigna, ExpressScript shareholders would hold the rest following the deal. 
Issuing of new debts, debts of Express Scripts and cash on hand would be used by Cigna for funding of the cash portion of the deal. Following the closure of the deal, about $41.1 billion ini debt is expected to be held by Cigna.
Current Cigna Chief Executive Officer David Cordani would lead the new entity.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc