(Bloomberg) — Industry insiders familiar with the matter revealed that Cigna Group and Humana Inc. are engaged in discussions about a potential cash and stock combination to form a new behemoth in the health insurance sector.
The timing and structure of this possible tie-up remain uncertain, according to the sources, who preferred to remain anonymous while discussing confidential information. Representatives for both companies have not yet responded to requests for comment.
A merger between Cigna and Humana could create a formidable competitor to UnitedHealth Group Inc. and CVS Health Corp. However, the combined size would still pale in comparison to UnitedHealth Group Inc., the largest insurer with a market value approaching half a trillion dollars. Cigna holds a market cap of around $80 billion, while Humana’s stands at roughly $63 billion.
Following the news, Cigna’s shares plummeted as much as 7.3%, marking the most significant intraday drop since August. Meanwhile, Humana saw a 3.2% decline at 1:34 p.m. in New York. The announcement also caused rival Centene Corp.’s stock to fall by as much as 6.7%.
If finalized, the deal would reduce the number of publicly traded national health insurers from six to five, giving the merged entity increased bargaining power in negotiations with hospitals and Medicare, according to Glen Losev, an analyst at Bloomberg Intelligence.
“Health insurance is a scale business,” Losev explained. “They would have more ability to expand their profit margins.”
Losev also noted that the two companies have certain complementary aspects, with Cigna owning Express Scripts, one of the leading managers of pharmacy benefits, and Humana being a major provider of Medicare managed care plans. The merger would also potentially face antitrust hurdles, given the industry’s history of regulatory challenges.
The last major wave of industry consolidation occurred approximately five years ago when CVS completed its nearly $70 billion acquisition of Aetna.
–With assistance from Fiona Rutherford and Gerry Smith.
