Anthem continues $47B Cigna takeover battle

Health insurance giant Anthem (ANTM) on Monday reiterated support for its $47.4 billion cash and stock takeover bid for Cigna (CI), undeterred by the smaller rival's rejection of the latest offer.

Indianapolis-based Anthem also tried to build Cigna shareholder support for the proposed transaction, webcasting a conference call with Wall Street analysts to discuss the deal terms.

The latest jockeying in what could be the largest-ever U.S. health insurance merger came as rating agency Standard & Poor's placed the credit rating of both firms on its CreditWatch with negative implications. S&P cited concerns the transaction would be complex, lengthy and involve a "potentially high degree of integration risk."

If finalized, the deal would create the largest U.S. player in the commercial insurance market, the largest player in the Medicaid market and the third-largest player in the Medicare market.

The ongoing takeover battle sent stocks of both firms higher in Monday trading. Anthem shares closed up 3.62% at $171.04, while Cigna shares closed up 7.73% at $162.60.

Anthem said the overall transaction — one of several potential health insurance sector mergers — is valued at nearly $54 billion, including debt, and represents a 35.4% premium based on Cigna's May 28 share price.

The deal would drive cost synergies of nearly $2 billion within two years of finalization by generating operating synergies as well as general and administrative expense savings, Anthem said. The company also predicted the transaction would generate at least $17 in adjusted earnings per share by 2018.

"We believe this is the best value transaction for both companies, customers and shareholders," Anthem CEO and President Joseph Swedish said during the conference call with financial analysts.

Anthem's response came after officials of Bloomfield, Conn.-based Cigna on Sunday characterized the latest takeover bid "inadequate and not in the best interests of Cigna's shareholders."

Anthem has made four offers this month for Cigna, most recently sweetening its takeover bid in response to what it said was its smaller rival's requests. Swedish said Anthem decided to go public with the previously secret negotiations because "the process was not developing" toward what he termed a positive conclusion.

Part of the disagreement focuses on what Cigna described as the "disconcerting and risky" proposal in which Swedish would hold four roles in the combined company: CEO, board chairman, president and head of integration. Cigna has sought increased responsibility sharing.

Swedish said Monday that the takeover bid would give Cigna three seats on the combined company's 13-member board of directors. He also signaled willingness to discuss giving Cigna CEO and Chairman David Cordani the chief operating role in the new firm.

In opposing the offer, Cigna also raised potential legal complications regarding Anthem's membership in the Blue Cross Blue Shield Association of health insurers. Health care providers and individual and small customers have filed antitrust actions that allege the group illegally allocated coverage markets to avoid competition while driving customer prices up and driving payments to providers down.

Swedish said Monday Anthem is "confident" of winning regulatory approval, "including the "matters related to Blue Cross Blue Shield."

Cigna also said it has outperformed Anthem by generating proportionately higher share prices, as well as by achieving higher increases in adjusted net income and revenue.

On Monday, Cigna spokesman Jon Sandberg declined to comment on Anthem's latest presentation.

Meanwhile, S&P, raised financial concerns, saying the proposed deal "could have a negative impact on the combined entity's financial risk profile."

But S&P Capital IQ analyst Jeffrey Loo reiterated his "buy" recommendation on both firms' stocks, saying the transaction makes strategic sense and predicting it would pass regulatory muster.

Contributing: Mike Snider