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Shares of Cigna jumped on Monday after reports that the healthcare giant scrapped plans to buy rival Humana due to disagreements over price, prematurely ending one of the biggest deals of the decade.
Cigna also announced plans late Sunday to repurchase $10 billion of shares, bringing the total planned repurchases to $11.3 billion. The company said in a press release that it would consider smaller, bolt-on acquisitions in the near future, but did not confirm reports of abandoning its pursuit of Humana.
Shares of Cigna closed more than 16% higher on Monday, while shares of Humana closed 1% lower.
Spokespeople for Cigna and Humana did not immediately respond to CNBC’s request for comment on the canceled merger, which was first reported by The Wall Street Journal on Sunday.
Cigna and Humana could not agree on the price and other financial terms of the deal, which would have created a healthcare conglomerate valued at more than $140 billion, sources familiar with the matter told the Journal.
This connection would likely have drawn strong antitrust scrutiny. The companies’ shares fell sharply in late November after the Journal first reported that they were discussing a merger.
However, Cigna still believes in the benefits of working with Humana, the Journal reported Sunday. The combined company would have focused on improving access to health care and reducing costs for consumers, sources told the Journal.
Jefferies analyst David Windley upgraded Cigna shares to “buy” in a research note Sunday, saying the abandoned Humana deal was a “near-term win” for Cigna investors.
He added that it was “music” to the “value-sensitive ears” of Cigna shareholders to “take advantage of a negative reaction to transaction reports” by announcing its stock repurchase plan on Sunday.
Windley noted that Cigna shares have fallen sharply since Nov. 6, when reports emerged that the company was exploring a sale of its Medicare Advantage business, which manages government health insurance for people age 65 and older.
Investors interpreted this potential sale as a “step toward reducing antitrust exposure in a takeover deal” by Humana, Windley said.
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Source : www.cnbc.com