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Cigna turns down takeover deal from Anthem

Cigna's leaders thought the deal was rife with corporate governance problems and lacked security in the face of Anthem’s own uncertainties.

Leaders from Cigna have turned down a $47.5 billion bid by Anthem to take over its business.

The bid by Anthem, the for-profit Blue Cross Blue Shield company, equalled roughly $3,680 for each of its 13.7 million health plan members and $184 per share.

The proposal offered a 35.4 percent premium on Cigna's stock price as of May 28, 2015 and would have created a $115 billion company with 53 million members and profit increases of at least 10 percent over the coming years, Anthem said.

"This combination is the absolute best strategy for both organizations to maximize the potential and lead the transformation of the healthcare industry," said Joseph Swedish, president and CEO of Anthem, the nation's second largest insurer by revenue. "Together our companies would rapidly build on each other's complementary strengths to create a diversified platform that could better capitalize on new opportunities and meaningfully deliver innovative, quality solutions to all of our stakeholders."

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But Cigna's leaders thought the deal was rife with corporate governance problems and lacked security in the face of Anthem's own uncertainties going forward.

The takeover "has the potential" to benefit "both consumers of healthcare services and healthcare professionals, while delivering immediate and sustainable economic returns to shareholders," wrote Cigna chairman Isaiah Harris and CEO David Cordani in a public letter to Anthem.            

"You are, however, facing a number of major issues, including Anthem's lack of a growth strategy, complications relating to your membership in the Blue Cross Blue Shield Association and the related antitrust actions, and other significant challenges, such as the massive data breach you experienced in February," wrote Cordani and Harris, a former AT&T executive. "Nothing of this size or scale has been attempted in our sector."

Cigna also did not like a provision in the bid that would have named Swedish, who the led Trinity Health Catholic hospital system until 2013, Anthem's board chair, CEO, president and "head of integration." The idea "is disconcerting and risky," Cordani and Harris argued, noting that Swedish has never held the chairmanship.

"We continue to believe that a proper and balanced approach to governance and leadership is necessary to maximize the potential for value creation for the combined company," the wrote. "Your proposal raises very serious questions regarding your views on proper governance, board oversight and risk management and underestimates the complexity of combining our organizations."

Anthem and Cigna have been exploring a deal since last August, but talks fell through over the last few months. Leaders at Connecticut-based Cigna saw the proposal as "inadequate" and "skewed in favor of Anthem shareholders."

Since 2010, Cigna's share price has soared nearly 200 percent, while Anthem's stock "significantly lagged the performance of both Cigna and the Managed Care peer group," Harris and Cordani wrote.

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Cigna's five-year-old strategy of "Go Deep, Go Global, Go Individual" has come with adjusted operating income that increased 13 percent on a compound year-over-year basis, they boasted. Adjusted net income from Anthem's BCBS companies in 14 states modestly declined in four out of the last five years, Harris and Cordani noted.

And, they added, Cigna's revenues have nearly doubled since 2010, with 14 percent annual compound growth. "Anthem's grew at an anemic 3 percent per year," and the company has "supported its earnings per share by deploying massive amounts of capital to share repurchases, totaling over $14.5 billion since 2009," Harris and Cordani wrote. "This approach reinforces Anthem's lack of a growth strategy and is incompatible with sustainable long-term growth."

Indianapolis-based Anthem, for its part, argued that Cigna is refusing to "reasonably negotiate" in a deal that offered up-front profits for shareholders and long-term opportunities. 

"The Anthem Board of Directors and management team are highly committed to pursuing this exciting opportunity, and stand ready to finalize due diligence and negotiations on a definitive agreement," Swedish said. "We are disappointed that Cigna's insistence on uncommon governance demands has impeded the realization of this combination for shareholders and all stakeholders. 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 2015."

Twitter: @AnthonyBrino

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