Tag Archives: mergers and acquisitions

Health Alerts

A Symptom; Not the Sickness: Understanding Health Insurance Consolidation

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iStock_000007047153XSmall(A version of this Health Alert was submitted as testimony to the U.S. Senate Judiciary Committee.)

Chairman Lee, Ranking Member Klobuchar, thank you for the opportunity to submit this testimony on the impact of mergers in the health insurance industry. The two combinations of greatest concern are Anthem’s announced takeover of Cigna and Aetna’s announced takeover of Humana. Although tis hearing is narrowly focused on antitrust as enforced by the Department of Justice, it is also necessary to understand Obamacare as a cause of this consolidation.

One indicator regulators use to determine whether a business combination will reduce competition is whether there are significant barriers to entry in the industry. If there are, new competitors will not exploit openings created by incumbents’ consolidation. The CEOs of Anthem and Aetna have each (independently) pointed to Oscar, a new health insurer with highly pedigreed investors, as evidence that health insurance is an easy business to enter.

Oscar is indeed an interesting enterprise, which has attracted fawning coverage in the business press both for its innovation and the quality of its investors. Nevertheless, Oscar is a curious start up, because it focuses exclusively on a market – Obamacare exchanges – in which insurers are losing money. Continue reading A Symptom; Not the Sickness: Understanding Health Insurance Consolidation →

Health Alerts

Oscar and The Changing Health Insurance Landscape

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Oscar(A version of this Health Alert was published by Forbes.)

Yesterday, the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights held a hearing on “Examining Consolidation in the Health Insurance Industry and Its Impact on Consumers,” at which the CEOs of Anthem and Aetna testified.  Both of these health insurers have announced friendly take-overs of two other insurers, Cigna and Humana.

One indicator regulators use to determine whether a business combination will reduce competition is whether there are significant barriers to entry in the industry. If there are, new competitors will not exploit openings created by incumbents’ consolidation. During the hearing, the CEOs of Anthem and Aetna each (independently) pointed to Oscar, a new health insurer with highly pedigreed investors, as evidence that health insurance is an easy business to enter.

Oscar is indeed an interesting enterprise, which has attracted fawning coverage in the business press both for its innovation and the quality of its investors. Nevertheless, Oscar is a curious start up, because it focuses exclusively on a market – Obamacare exchanges – in which insurers are taking on a lot of pain. Continue reading Oscar and The Changing Health Insurance Landscape →

Health Alerts

Cross-Over Investors Key Players in Health Deal Boom

SVB

(A version of this Health Alert was published by Forbes.)

Silicon Valley Bank has published its mid-year report on the state of financing in biotech, medical devices, and diagnostics. The key take-away is that both private financing and exits continue to be strong. One development in the structure of the market that has made deals easier to move through the pipeline is the rise of cross-over investors. These are mutual funds or hedge funds (usually investors in listed securities) which are increasingly investing in private health deals. Continue reading Cross-Over Investors Key Players in Health Deal Boom →

Health Alerts

Health Plan Mergers: Clash of Lobbying Titans

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(A version of this Health Alert was published by Forbes.)

One month ago, I noted that the market was pricing a very high risk premium into two of three take-overs among health insurers. In a volatile stock market, the merger-arbitrage spreads for the three deals currently in play are remarkably stable. Anthem’s take-over of Cigna and Aetna’s take-over of Humana continue to be viewed as highly risky, while Centene’s take-over of HealthNet is viewed as almost certain to take place as announced.

Chart  I shows the expected rates of return for investors shorting the spread of these three mergers, as they have evolved from the shares’ closing prices on June 24 (the date Anthem’s bid for Cigna turned from hostile to friendly) to yesterday. Each rate of return assumes it will take until the third quarter of 2016 for each deal to close.

20150910 CI Continue reading Health Plan Mergers: Clash of Lobbying Titans →

Health Alerts

Health Insurer Earnings and Merger Update

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(A version of this Health Alert was published by Forbes.)

The major health insurers have announced their quarterly earnings. For UnitedHealth Group, the largest health insurer, plus the six which are currently engaged in take-over deals, the results were largely positive. The results, and the market’s reaction, indicate three things:

  • Health plans have largely been able to pass increases in medical costs onto their members, challenging the notion that Obamacare’s regulations on profit have benefited consumers.
  • The risk of participating in Obamacare’s exchanges is not decreasing and insurers continue to be challenged pricing premiums, even though the taxpayer funded training wheels (risk corridors and reinsurance) come off in 2017.
  • Investors continue to assign very high risk premiums to two of the three recently announced mergers of health plans.

Continue reading Health Insurer Earnings and Merger Update →

Health Insurance

Investors Not Buying Anthem-Cigna Deal

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Earlier this week, I wrote that merger arbitrage spreads indicated investors are not convinced the spate of recently announced takeovers among health insurers will close. Today’s news that Anthem (NYSE:ANTM) and Cigna (NYSE:CI) have agreed to takeover terms does not change that story.

Anthem’s original (hostile) bid was for $184 per share. Today’s is a minor bump, of $188 per share. The big difference is the mix of cash versus Anthem stock. The original bid was $126.22 in cash, versus only $103.40 today. Today’s bid includes 0.515 shares of Anthem stock, significantly higher than the previous bid.

The joint announcement claimed the new bid was at a premium of 38.4 percent of Cigna’s unaffected price. However, prices of both shares used for valuation in the announcement were May 28 closing prices. Continue reading Investors Not Buying Anthem-Cigna Deal →

Health Alerts

Health Insurers’ Merger Mania On Hold?

(A version of this Health Alert was published by Forbes on July 22.)

Just a few weeks ago, it was declared that a great pent-up demand for mergers and acquisitions among health insurers would unleash itself as a result of Obamacare’s confirmation by the Supreme Court. And so it did, for a while at least.

Insurers

In 2011, two deals (Cigna’s acquisition of Health Spring and Aetna’s purchase of Coventry Health Care) were worth $9.5 billion. Today’s three pending deals are much larger, amounting to almost one hundred billion dollars. However. today’s consolidation seems less sure. Continue reading Health Insurers’ Merger Mania On Hold? →