Shares of Cigna Group and Humana Inc. moved lower in the afternoon cash session following the report from The Wall Street Journal that the two healthcare companies are engaged in merger talks.
According to people familiar with the discussions, the merger is a stock and cash deal that could be finalized by the end of the year. If talks don't fall apart, the merger will combine Cigna's market cap of about $80 billion and Humana's of about $63 billion and create a new powerhouse in the health insurance industry to challenge the market dominance of UnitedHealth Group.
Merging would allow the combined entity of Cigna/Humana to compete with industry giants UnitedHealth and CVS, propelling them into the top tier of integrated healthcare firms. Last year, Cigna's revenues were $181 billion, which could combine its large pharmacy-benefit unit, which manages drug plans, and its strength in commercial insurance with Humana's rapidly expanding Medicare segment, something Cigna has been pursuing.
Humana, having generated around $93 billion in revenue last year, is the second-largest Medicare insurer, trailing only UnitedHealth. In contrast, Cigna's current Medicare Advantage division is significantly smaller. Additionally, Humana's substantial home-health business and its expanding network of primary-care clinics could greatly enhance Cigna's Evernorth health services arm.
However, the proposed merger is expected to encounter antitrust challenges in an industry where regulators have previously blocked the last two significant mergers. This includes a proposed union between Cigna and Anthem, now known as Elevance Health Inc.
"A possible Cigna-Humana merger as reported by the Wall Street Journal would make strategic sense via cross benefits between the pharmacy-benefit manager (PBM) and the Medicare-focused insurer, but could face regulatory hurdles. Even if an agreement is reached, the odds of the deal closing are questionable given the size of the combination and increased federal scrutiny of PBMs and health insurers," Bloomberg's BI analyst Glen Losev wrote in a report.
Shares of Cigna are down 6.5%, while shares of Humana are down 2.7%.
A mega-deal between Cigna and Humana would be a welcoming sign for the merger and acquisition markets amid high-interest rates crushing deal flow this year. It would likely be the biggest deal of the year, exceeding Exxon Mobil's $60 billion agreement to acquire Pioneer Natural Resources last month.