Cigna Corporation (NYSE: CI) and HealthSpring, Inc. (NYSE:HS) announced that they have signed a definitive agreement under which Cigna will acquire all the outstanding shares of HealthSpring for $55 per share in cash, a 37 percent premium over the closing stock price on Friday, representing a total transaction value of approximately $3.8 billion.
HealthSpring’s leadership team, headed by Chairman and Chief Executive Officer Herb Fritch, will lead Cigna's expansion in the rapidly growing Seniors and Medicare segments. The business combination is expected to be accretive to Cigna earnings per share in the first full year of operations. The agreement has been approved by the boards of directors of both companies and is subject to required regulatory approvals and customary closing conditions. The transaction is expected to close during the first half of 2012 and is not subject to a financing condition.
“HealthSpring is a great fit with Cigna's growth plans to expand into the Seniors and Medicare segment through a premier business and trusted brand name,” said David M. Cordani, president and chief executive officer. “Our two companies share a common strategic vision and philosophy that we create customer value by partnering with health care professionals, and use information and incentives to deliver high-quality, differentiated programs.”
“We are thrilled to announce this transaction with Cigna,” said Herb Fritch. “Following a review undertaken by our Board of Directors of the company’s strategic options, we concluded that the combination is in the best interests of our shareholders. The combination will also expand our ability to serve our physician partners and customers. Cigna recognizes the value in HealthSpring’s differentiated model of physician engagement, and shares our commitment to providing high quality, cost effective care to the members and communities we serve. We truly look forward to continuing and expanding upon this mission.”
The combination provides Cigna with several significant opportunities to further expand upon its successful growth strategy:
•Scaled presence in the highly-attractive Seniors segment, with a highly differentiated Medicare Advantage business that currently has approximately 340,000 Medicare Advantage members in 11 states and Washington, D.C., as well as a large, national stand-alone Medicare prescription drug business with over 800,000 customers;
•One of the most trusted and well-respected brands offering Seniors quality care through its highly differentiated physician partnerships;
•Future growth opportunities to expand HealthSpring’s customer base by leveraging Cigna's current client relationships and to further the expansion of HealthSpring into new geographic regions, leveraging Cigna’s nationwide presence, customer base and distribution capabilities;
•Ability to offer Cigna’s current commercial and individual customers the opportunity to experience HealthSpring’s differentiated physician coordination model; and
•Further leverage Cigna's diverse portfolio of specialty programs for the benefit of HealthSpring’s customers.
“HealthSpring’s talented team, led by Herb and his senior leadership team, have built an innovative business, and a strong reputation for service excellence, while effectively partnering with health care professionals to deliver differentiated value and quality to the individuals they serve,” continued David M. Cordani. “By combining our businesses, we have an opportunity to create substantial value for our customers, shareholders, employees and other key stakeholders as we extend our health solutions and programs across the government, employer-sponsored and consumer segments.”
Consistent with its strategy, Cigna expects to continue to create meaningful near-term earnings growth and expects this transaction to enhance its revenue growth and profitability over time. Cigna has obtained a commitment for bridge financing provided by Morgan Stanley that, combined with available liquidity, is sufficient to fund the acquisition. Cigna intends to raise approximately 20 percent of the purchase price through the issuance of new equity, with the balance funded from additional debt issuance and internal cash resources. This permanent financing structure is expected to enable Cigna to maintain its financial flexibility, a strong balance sheet and its current credit ratings.
Cigna noted that it is filing this morning a Form 8-K that will outline its increased outlook for its 2011 full year results, as well as detailing certain third quarter information ahead of its full earnings announcement scheduled for Friday.
Cigna’s financial adviser is Morgan Stanley and its legal adviser is Davis Polk. Goldman, Sachs & Co. is acting as financial adviser to HealthSpring, and its legal advisers are Skadden, Arps, Slate, Meagher & Flom, LLP and Bass, Berry & Sims PLC.