Health Plan Mergers: Clash of Lobbying Titans

One month ago, I noted that the market was pricing a very high risk premium into two of three take-overs among health insurers. In a volatile stock market, the merger-arbitrage spreads for the three deals currently in play are remarkably stable. Anthem's take-over of Cigna and Aetna's take-over of Humana continue to be viewed as highly risky, while Centene’s take-over of HealthNet is viewed as almost certain to take place as announced.

Two deals – Anthem’s takeover of Cigna, and Aetna’s takeover of Humana – are trading at spreads indicating rates of return of over 20 percent, an extremely high risk premium. Opponents of the mergers have started to launch their campaigns, designed to provoke public and political opposition to health plans’ consolidation.

Read the entire column at Forbes.

Investors Not Buying Anthem-Cigna Deal

Earlier this week, I wrote that merger arbitrage spreads indicated investors are not convinced the spate of recently announced takeovers among health insurers will close. Today’s news that Anthem (NYSE:ANTM) and Cigna (NYSE:CI) have agreed to takeover terms does not change that story.

Anthem’s original (hostile) bid was for $184 per share. Today’s is a minor bump, of $188 per share. The big difference is the mix of cash versus Anthem stock. The original bid was $126.22 in cash, versus only $103.40 today. Today’s bid includes 0.515 shares of Anthem stock, significantly higher than the previous bid.

The joint announcement claimed the new bid was at a premium of 38.4 percent of Cigna’s unaffected price. However, prices of both shares used for valuation in the announcement were May 28 closing prices.

Health Insurers' Merger Mania on Hold?

Just a few weeks ago, it was declared that a great pent-up demand for mergers and acquisitions among health insurers would unleash itself as a result of Obamacare’s confirmation by the Supreme Court. And so it did, for a while at least. Today, the consolidation seems less sure.

In 2011, two deals, Cigna's acquisition of Health Spring and Aetna's purchase of Coventry Health Care, were worth $9.5 billion. Today’s three pending deals are much larger, amounting to almost one hundred billion dollars.

However, all three of the deals announced recently are looking a little shaky. Investors appear to have lost confidence that these combinations will take place.

Read the entire column at Forbes.