Cigna to call off Humana deal, plans US$10 billion buyback

CIGNA Group is planning a “significant” increase of its stock buyback, committing an additional US$10 billion to the plan after calling off its pursuit of Humana.

The buyback increases Cigna’s total share repurchase authority to US$11.3 billion, the Bloomfield, Connecticut-based company said on Sunday (Dec 10).

Cigna is also abandoning discussions with Humana, according to sources with knowledge of the matter who asked not to be identified. While the two sides believed a merger made strategic sense and thought it could clear regulatory hurdles, they could not agree on the price, the sources said.

A combination would have created a health insurance behemoth with a combined market value of about US$135 billion, even after share price declines for both companies in the past month. The bearish market response signalled that investors thought a combination might have been worth less than the sum of its parts.

The two companies had been discussing a cash-and-stock deal but the timing and structure were unclear, Bloomberg News previously reported.

Price gap

The gap between how much Cigna wanted to pay and what Humana was expecting was too wide and Cigna’s stock price decline made it even harder to close that gap, one of the sources said. And while the two sides felt their odds of clearing antitrust concerns were good, some investors worried about a protracted review process and a possible court battle in an election year, the source said.

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A representative for Humana declined to comment. The Wall Street Journal reported earlier on Sunday that Cigna was walking away from the merger talks.

Cigna expects to repurchase at least US$5 billion of common stock by the end of the first half of 2024, according to its statement. A portion of the repurchase will take place through an accelerated programme conducted in the first quarter.

“We believe Cigna’s shares are significantly undervalued and repurchases represent a value-enhancing deployment of capital as we work to support high-quality care, improved affordability, and better health outcomes,” said David Cordani, Cigna’s chairman and chief executive officer. “As we look at the broader landscape and the strategic opportunities before us, we will remain financially disciplined with a clear focus on executing against our strategy, delivering value for our shareholders, and investing in our future.”

Bolt-ons, divestitures

While Cigna did not comment publicly on Humana, Cordani said that the company will “consider bolt-on acquisitions aligned with our strategy, as well as value-enhancing divestitures”.

Cigna’s plan to divest its Medicare Advantage business is still going ahead and could be announced within two weeks, one of the sources said. That business has drawn interest from potential buyers including Health Care Service, Bloomberg News has reported. BLOOMBERG