Anthem reveals $54-billion bid for Cigna after merger talks break down

Healthcare giant Anthem Inc. stepped up its pursuit of rival Cigna Corp. with a $54-billion takeover bid amid an industrywide merger frenzy that could dramatically reshape the insurance market.

Anthem, the nation’s second-largest health insurer, said Saturday it had offered $184 a share for Cigna in cash and stock, or $54 billion, including debt. But Anthem expressed frustration that talks had broken down in recent days over the future role of Cigna’s chief executive.

The public move by Anthem caps weeks of speculation about a flurry of potential mega-mergers among the industry’s biggest players. It’s possible another suitor could vie for Cigna, based in Bloomfield, Conn.

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.

Cigna has been pursuing a deal of its own for Humana Inc., which is prized for its strong Medicare Advantage business. Meanwhile, UnitedHealth has approached the third-largest company, Aetna Inc., about a merger.

The companies are looking to bulk up to better take advantage of rising revenues from the Affordable Care Act and the growing privatization of Medicare and Medicaid.

The sector has benefited from the health law’s expansion of subsidized, private coverage and Medicaid, the joint state-federal insurance program for the poor.

But expanding membership and revenue haven’t translated to bigger profits for much of the industry. Health insurers are hoping consolidation enables them to squeeze out more costs and negotiate better prices with hospitals, doctors and drugmakers.

Many health experts worry those savings won’t be passed along to employers and consumers. These deals might also run into antitrust scrutiny from federal officials worried about reduced competition.

Saturday, Anthem expressed confidence that its proposed merger could satisfy regulators and help drive down healthcare costs.

By going public with its offer, Anthem is trying to pressure Cigna to drop its demands concerning top management and reach an agreement. Anthem said its offer represented a 35% premium to Cigna’s closing price on May 28, when deal rumors sent many health insurance stocks soaring.

Anthem said it has been exploring a deal for Cigna since August. This month alone, it submitted four different bids, starting at $174 a share and raising it to $184 now.

But a big sticking point appears to be a future role for Cigna Chief Executive David Cordani.

Anthem Chief Executive Joseph Swedish said he would serve as chief executive of the combined company for two years. Cordani would be his No. 2 as president and chief operating officer.

After that period, Cordani would be a candidate for the top job — but nothing is guaranteed, according to Anthem.

“We were stunned that the Cigna board continues to insist on a guaranteed CEO position for Mr. Cordani over choosing to allow its stockholders to realize the significant premium being offered,” Swedish said in a letter to Cigna’s board Saturday.

“With the cooperation of Cigna management and board of directors, we expect that we could reach a mutually agreeable and negotiated transaction by the end of June,” Swedish added.

A Cigna spokesman declined to comment Saturday.

Anthem sells Blue Cross plans in California and 13 other states. It also has a big Medicaid managed-care business in many states.

Anthem, based in Indianapolis, is the largest for-profit health insurer in California and leads the Covered California exchange in enrollment. Cigna is the nation’s fifth-largest health insurer and has a smaller presence in California.

Twitter: @chadterhune