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Cigna pulls out of blockbuster deal to create insurance giant with Humana

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US health insurer Cigna has abandoned plans to merge with Humana, a blockbuster transaction that would have created a $140bn insurance giant, according to people familiar with the matter.

The merger would have marked the largest deal of the year. Disagreement over financial arrangements, regulatory fears and falling share prices following reports of the potential tie-up drove Cigna’s decision to halt plans, the people said. 

Shareholders generally wanted their CEOs to carry out transformative deals but not in this environment, according to one person familiar with the matter. The risk of a deal getting blocked or just left in limbo for years was too high and disruptive, they added.

The end of merger talks comes as Cigna prioritises stock buybacks. The insurer announced plans on Sunday to increase stock repurchases by $10bn. The Wall Street Journal first reported that Cigna’s plans to merge with Humana had ended. 

Cigna and Humana did not immediately respond to requests for comment. Cigna chief executive David Cordani said the company remained “financially disciplined” and “will consider bolt-on acquisitions aligned with our strategy” in a statement on its share repurchase programme. 

“We believe Cigna’s shares are significantly undervalued and repurchases represent a value-enhancing deployment of capital,” Cordani said.

Mounting pressure to reduce costs has driven consolidation efforts in the US healthcare industry in recent years amid a tough regulatory backdrop. Earlier this year, CVS Health spent nearly $20bn to acquire home health provider Signify Health and primary care network provider Oak Street Health.

Seventy per cent of healthcare companies expect M&A activity in healthcare to increase in 2024 after two relatively quiet years, according to a recent global survey from Jefferies. In its mid-year report, PwC found that volumes for US health services deals were 4 per cent lower than in 2022.

The merger between Cigna and Humana would have helped the insurers compete with larger rivals including UnitedHealth Group, which generated $322bn in revenue last year. Humana and Cigna together made about $263bn. 

Both Cigna and Humana have had previous deals blocked by federal courts. In 2017, Humana and Aetna called off merger plans after a federal judge ruled it was uncompetitive. Cigna and Anthem abandoned talks weeks later after a similar federal ruling.

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