Cigna claps back at Icahn in defense of Express Scripts acquisition
- Cigna has issued a lengthy letter to shareholders defending its pending merger with Express Scripts after activist investor Carl Icahn publicly bashed the deal as one of the "worst acquisitions in corporate history." In the letter, Cigna calls Icahn's opposition to the deal "misguided and short-sighted" and says it "demonstrates a clear lack of understanding of the dynamics of the healthcare industry."
- Icahn, who owns 0.56% of Cigna, said earlier this week competition from Amazon and the looming threat to the existing pharmacy benefit manager rebate system "is a potentially massive destruction of Cigna shareholder value." Cigna calls Icahn's views "erroneous" and "naturally aligned" with the pharmaceutical industry.
- Cigna assured shareholders that it has demonstrated adaptability and profitability in a highly-regulated market where the "only constant" is that "unsustainable cost increases are creating disruptive changes in the environment." Shareholders will vote on the Express Scripts acquisition, valued at $67 billion, on Aug. 24.
The payer's response to Icahn is less colorful than his statement urging a no vote on the merger, but it offers point-by-point rebuttals.
Cigna touted Express Scripts' second quarter earnings results to combat Icahn's argument that the business is struggling and doomed to fail while HHS continues to target PBMs, and claimed the investor's open letter to shareholders "misrepresents the potential impact of rebate regulation."
Express Scripts CEO Tim Wentworth told investors on its second quarter earnings call that phasing out Medicare Part D rebates would not have a "material impact" on earnings. Cigna added in its letter to shareholders that any changes to Medicare Part D rebates would be "manageable."
In his letter urging shareholders to vote against the transaction, Icahn argued that instead of acquiring Express Scripts, Cigna should engage in a multi-year partnership with the company or another PBM while regulatory and competitive risks to the PBM industry are worked out. Cigna shouted down that proposal, saying the combined company would deliver greater value to shareholders and customers.
"This will position Cigna to deliver differentiated immediate and long-term value to our shareholders in the form of strong EPS accretion, significant free cash flow generation and exceptional financial flexibility in a highly dynamic marketplace," the letter reads. "We believe that this delivers much more substantial value than a quick financial engineering scheme for the benefit of a singular, transitional investor, who claims to own only 0.56% of Cigna’s outstanding common stock."
Icahn's plans to convince other shareholders to oppose the PBM acquisition have reportedly been in the works for some time. Jefferies analysts last week suggested his open letter to shareholders "adds an interesting wrinkle, but likely too little too late."
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