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Cigna eyes 'sustainable healthcare system' with Express Scripts deal

The need to create a "more sustainable healthcare system" was one of the key drivers that led Cigna Corp. to agree to combine with pharmacy benefit manager Express Scripts Holding Co. in a massive $67 billion transaction, according to Cigna President and CEO David Cordani.

A combination with Express Scripts appeared both "strategic" and "financially attractive," Cordani said on a call to discuss the blockbuster deal. The combined entity is expected to establish a "significantly expanded portfolio of integrated health services" through the creation of a new services business unit that will offer solutions including behavioral health, pharmacy and specialty pharmacy and other health engagement services to employers, health plans and government agencies. The combined company will have more than 1 billion customer touch points every year, Cordani said.

CFO Eric Palmer offered details on the terms of the deal and the financing structure. Cigna expects the transaction to be immediately accretive by double digits in the first full year of operation, even after excluding the impact of Express Scripts' previously announced transitioning clients. Anthem Inc. in October 2017 confirmed that it will not renew its current pharmacy benefits management contract with Express Scripts as it planned to form its own pharmacy benefits manager.

More than $600 million of retained synergies are expected as a result of the transaction, primarily reflecting the benefit of administrative efficiencies. Additionally, the combination will generate "meaningful" savings in medical and pharmacy costs that will be primarily be passed on to customers, clients and healthcare partners through a "broader set of solutions," Palmer said.

The combined company expects to deliver an annual revenue growth of 6% to 8%, an annual earnings growth rate at or above Cigna's historical long-term expectations of high-single-digit percentage growth, and could generate "substantial free cash flows," Palmer said.

As a result of value creation from the transaction, Cigna has raised its outlook for 2021 and now projects EPS of between $20 and $21, up from the $18 it earlier expected.

Cigna expects to finance the transaction through a combination of cash on hand, new debt issuance and new equity issued to Express Scripts shareholders. The insurer will suspend share repurchases in 2018 until the transaction is closed.

The transaction is not subject to a financing condition.