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Cigna shares slide after Express Scripts bid while wider market rises

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Cigna shares slide after Express Scripts bid while wider market rises

Cigna Corp.'s shares tumbled March 8 after the company announced its plan to acquire pharmacy benefits manager Express Scripts Holding Co.

That day, the company's share price fell 5.7%, leading Cigna to the largest share-price drop over the last five trading days among insurers tracked by S&P Global Market Intelligence. The drop came amid gains in the broader insurance market, with the SNL Insurance Index rising 1.56% to 1,036.26 in the same stretch. The S&P 500 climbed 2.30% to 2,738.97 during the period.

Cigna proposed acquiring Express Scripts for about $67 billion in total, consisting of $48.75 in cash and 0.2434 share of the combined company's stock per Express Scripts share.

The price tag may have played a part in Cigna's share-price drop, said Morningstar analyst Vishnu Lekraj. There is "a perception" that the pharmacy business model is "impaired" to some extent, which may have made investors wary of the deal, he said. But Lekraj does not share that concern.

"The opposite is true," he said in an interview. "Cigna is getting a great deal out of this both from a valuation perspective and an operational perspective."

By adding Express Scripts, Cigna hopes to develop offerings based around behavioral health, pharmacy and specialty pharmacy, and other health-engagement services designed for employers, health plans and government agencies, Cigna President and CEO David Cordani said March 8 on a conference call.

If approved, the Express Scripts deal would mark Cigna's entrance into the pharmacy benefits management space, an increasingly competitive area that insurers have recently looked to for future growth. In December 2017, rival managed care company Aetna Inc. agreed to acquire CVS Health Corp. for $69 billion. Aetna's shares decreased 0.10% to $176.25 during the five trading days.

Cigna may have snatched up one of the last large pharmacy benefits managers available on the market, and now other managed care companies may have to settle for smaller deals in the space, said Lekraj. The Express Scripts bid is unlikely to face many regulatory hurdles since market share should not shift violently on either side of the acquisition, he added.

Cigna's shares ended down 11.1% to $172.00 over the last five trading days.

Fellow health insurers UnitedHealth Group Inc. and Humana Inc. saw their shares fall slightly March 8 after Cigna announced the Express Scripts bid.

The drop in both companies' stocks were likely tied to Cigna's bid for Express Scripts, Jefferies analyst David Windley wrote in a March 8 research report. UnitedHealth's OptumRX has been Cigna's primary pharmacy benefits manager business, and it could lose that business as Windley expects Cigna to transfer to Express Scripts now.

Meanwhile, Humana's stock fell because investors believed Cigna's chief executive was interested in Humana as he looked to expand Cigna's Medicare Advantage business, Windley wrote in the report.

UnitedHealth ultimately saw its shares rise 0.10% to $224.73 during the five-day period. Humana's shares ended the period down 0.07% to $269.52.

Meanwhile, specialty P&C and reinsurance company XL Group Ltd saw the largest jump in its share price during the period among insurers tracked by S&P Global Market Intelligence. The company's stock ended the past five trading days up 30.6% to $55.80.

The company's shares jumped after French insurer AXA agreed to acquire the company for about $15.26 billion, marking the largest deal announced for a Bermuda-based, property and casualty insurer since the beginning of 2014. AXA's announced deal for XL Group followed American International Group Inc.'s $5.56 billion deal for Validus Holdings Ltd., furthering the consolidation wave hitting Bermuda insurers.