Cigna-Express Scripts merger cleared by DOJ
- The Department of Justice on Monday said it will not challenge Cigna's $67 billion acquisition of Express Scripts because the deal "is unlikely to result in harm to competition or consumers."
- While the federal antitrust division will not seek to block the merger, the deal is still subject to state regulators and various departments of insurance.
- The deal, which has already secured shareholder approval, is expected to close at the end of the year.
Industry watchers now turn their eyes more squarely to the DOJ's verdict on the $69 billion proposed Aetna-CVS merger. The two mega-mergers highlight the growing trend of healthcare companies vertically integrating to combat headwinds including softening patient admissions and ever-rising healthcare costs.
Leerink analyst David Larsen is among those predicting a green light for the Aetna deal as well, noting that overlap in Medicare Part D coverage could explain the longer approval process.
The DOJ clearance moves Cigna one step closer to putting its medical benefit services and Express Scripts expertise in pharmacy benefit management under one roof. Analysts have said this is crucial as payers try to rein in spending on costly specialty drugs.
Both Express Scripts and Cigna shares closed higher Monday from the previous close following the DOJ clearance. Express Scripts shares closed at $95.23 and Cigna's closed at $197.84. Cigna's stock was trading upward at $199 by mid-morning Tuesday, and Express Scripts' was trading at $95.59.
Regulators spent six months on the investigation, reviewed more than 2 million documents and interviewed more than 100 people from within the industry before reaching their conclusion, DOJ said.
Brian Tanquilut, an analyst with Jefferies, said DOJ's decision not to intervene is not surprising "given the lack of overlap between Cigna's business versus Express Scripts."
Cigna overcame a last-minute effort by activist investor Carl Icahn to nix the deal, warning fellow shareholders in an early-August open letter that the deal was among the "worst acquisitions in corporate history."
Icahn backed down after major shareholder advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co. came out in support of the deal.
Company officials promised the tie-up would yield savings for consumers, though some consumer groups and experts are skeptical. Studies of some horizontal healthcare mergers in general don't find cost savings are passed onto consumers.
"If Cigna is allowed to become the latest in the trend to take PBM needs in-house, it is more likely that consumers could end up at the mercy of a handful of giants — each with its own siloed services — and the choices they now enjoy for medical care and pharmacy needs becoming a thing of the past," Consumers Union senior policy counsel told U.S. lawmakers earlier this year.
California's Attorney General in particular has blasted the proposed Aetna-CVS union, citing anti-competitive impacts, and asked the Justice Department to block it. That seems unlikely given the Democratic leadership in the state and the current administration.
Still, backers say combining various aspects of the healthcare ecosystem will create efficiencies.
"We are pleased that the Department of Justice has cleared our transaction and that we are another step closer to completing our merger and delivering greater affordability, choice and predictability to our customers and clients as a combined company," Cigna CEO David Cordani said in a statement.
On its first quarter earnings call with investors earlier this year, Cigna executives said they expect the deal to result in earnings per share increasing from $18 to $20-21 by 2021 and a long-term annual growth rate of 6% to 8%. Cigna shareholders will own about 64% of the combined company and Express Scripts shareholders will own about 36%.