Health insurance giant Cigna has ended its attempt to acquire rival Humana after antitrust regulators blocked the $54 billion merger deal in 2017, opting instead to return capital to shareholders with a significantly expanded $10 billion share repurchase program.
Failed Mega-Merger Attempt
Cigna first bid to acquire Humana in 2015 in a deal valued at $54 billion that would have combined two of the largest health insurers in the U.S. However, the merger attempt faced stiff opposition from antitrust regulators over concerns about reduced competition and higher costs in the Medicare Advantage market.
In July 2016, the U.S. Justice Department filed a lawsuit to block the Cigna-Humana deal on antitrust grounds, arguing the combination would harm seniors enrolled in Medicare Advantage plans across hundreds of counties. After a federal court agreed with the Justice Department in early 2017 and moved to halt the deal, Cigna and Humana mutually terminated their merger agreement.
Cigna then briefly pursued acquiring Express Scripts in a $67 billion deal before reaching an agreement in 2018. Humana has remained independent.
Recent Speculation on Renewed Deal
After several years of operating independently post-failed merger, rumors began swirling in late 2022 that Cigna may take another run at acquiring Humana.
With both insurers deeply embedded in Medicare Advantage and Cigna lacking a significant senior segment, analysts speculated a tie-up still made strategic sense. Additionally, the regulatory environment under the Biden administration was seen as possibly more receptive than previously.
| Company | 2022 Revenue | Members | 2022 Net Income |
|---|---|---|---|
| Cigna | $179 billion | 17 million | $6.3 billion |
| Humana | $93 billion | 17 million | $9.4 billion |
However, sources reported this weekend that after re-engaging in talks over the past couple months, Cigna ultimately decided in recent days to again halt its attempt to negotiate an acquisition of Humana after failing to come to agreeable terms.
$10 Billion Share Repurchase Instead
With the pursuit of Humana now abandoned for a second time, Cigna has pivoted to returning significant capital to shareholders.
The health services company announced an increase of its share repurchase authority to $10 billion from the previous outstanding amount of $7 billion. Buying back shares typically boosts a company’s stock price.
Cigna stated that the expanded buyback reflects confidence in its financial outlook and will be funded through available liquidity and future cash flow generation.
The announcement led to Cigna shares surging over 12% in Monday trading. Humana stock also rose nearly 2% on the news.
Outlook Going Forward
With merger plans now firmly scuttled, Cigna appears set to focus operations around its health services segment that includes pharmacy services giant Express Scripts. Continuing share buybacks and targeted, smaller acquisitions will likely supplement a strategy aimed at sustained profitable growth.
Humana, which generates over two-thirds of its revenue from Medicare Advantage plans, is well-positioned independently as well. Its leading market share in senior health coverage should continue fueling earnings expansion.
However, the competitive landscape in Medicare Advantage between Cigna, Humana, UnitedHealth and others bears ongoing monitoring. Any shifts in market positioning could feasibly renew speculation on dealmaking between the major players.
Though pairing up to increase scale may still hold longer-term appeal, for now Cigna and Humana will press forward alone while directing excess cash toward shareholders.
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