Cigna (NYSE:CI) was recently granted an early termination of the antitrust waiting period by the U.S. Department of Justice (DOJ) for its proposed acquisition of pharmacy benefit manager Express Scripts (NASDAQ:ESRX). With this, Cigna has managed to cross a major hurdle in the path of this deal. Notably, this transaction had received friction from CI stock investor Carl Icahn, who urged the shareholders of the companies involved to vote against the deal on concerns that it would hardly benefit Cigna, given the headwinds faced by Express Scripts.
Last month, shareholders of both the companies gave their approval to the proposed acquisition. Valued at nearly $67 billion at the time of its announcement in March 2018, the deal is expected to close by the end of 2018, subject to regulatory clearances in some states.
Regarding the synergy to be derived from the deal, Cigna expects adjusted earnings-per-share to gain in the double-digits range (excluding any impact from transitioning of clients by Express Scripts specially Anthem) in 2019. By 2021, this health insurer projects adjusted EPS of $20-$21, of which $2-$3 is expected to come from Express Scripts.
Given no significant overlapping business between CI and ESRX, the DoJ nod was more or less anticipated. Overlapping business leads to market concentration and can negatively impact healthy competition in an industry. On the contrary, an official of the DoJ stated that, the deal will hardly impact competition or consumers.
What to Expect From CI Stock
In a year’s time, CI stock has gained 6.8% against the industry’s decline of 2.8%.
Approval of this proposed acquisition by the DoJ also lays the path straight for another pending deal between health insurer Aetna (NYSE:AET) and CVS Health Corp (NYSE:CVS), a pharmacy benefit manager. Both the companies, however, have overlapping Medicare Part D prescription drug plan business and will have to divest some of this business to be able to qualify for DoJ’s approval.
Moving ahead, these deals are likely to transform the healthcare space into a more integrated one, with companies building their backward and forward chains. The combination of a pharmacy benefit business with health insurance should help the companies control drug pricing costs to some extent, which is one of the significant reasons behind soaring medical costs. It will also help the pharmacy benefit managers to position themselves better for facing the competition arising from the entry of Amazon (NASDAQ:AMZN) in the healthcare space.
CI stock carries a Zacks Rank #2 (Buy).
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