There will be a spotlight on the healthcare sector today after Cigna (CI 183.93, -10.30, -5.3%) announced an agreement to acquire pharmacy benefit management company Express Scripts (ESRX 85.75, +12.33, +16.8%) for $67 billion, including the assumption of approximately $15 billion in Express Scripts debt.
This is a cash-and-stock deal, consisting of $48.75 in cash and 0.2434 shares of the stock of the combined company per ESRX share. The deal was priced to sell to shareholders so to speak as it represents a healthy 31% premium over ESRX's closing price on March 7.
The boards of directors of both companies have approved the deal, which is expected to be completed by December 31, 2018, assuming it wins approval from shareholders and regulators, the latter of whom are also reviewing CVS Health's (CVS 67.51) proposed acquisition of Aetna (AET 178.64).
CVS Health and Aetna each own PBMs that compete with Express Scripts. Similarly, Humana (HUM 273.29), UnitedHealth (UNH 227.27), and Rite-Aid (RAD 1.80), which is being acquired by Albertsons, do as well. Walmart (WMT 87.74), meanwhile, also poses some competition for PBMs.
Merger activity in the healthcare space is picking up as companies are aiming to find ways to control rising health care costs through operating efficiencies and expanded product/service offerings.
For Cigna's part, the company highlighted three strategic benefits of its acquisition of Express Scripts: (1) Expanded Consumer Choice (2) Patient-Provider Alignment and (3) Personalized Value.
The combined company will retain the Cigna name and will be headquartered in Connecticut. David M. Cordani, who is President and CEO of Cigna, will be President and CEO of the merged company.
Cigna said its debt-to-capitalization ratio will be approximately 49% following the acquisition, but that its aim is to reduce that to somewhere in the 30's within 18 to 24 months after the deal closes.