Anthem/Cigna Merger Strategically Sound But Richly Priced

The second major acquisition domino has fallen within the managed care space as

However, we believe Anthem is significantly overpaying for this transaction, as its proposed purchase price is more than double our $84 stand-alone fair value estimate for Cigna. Considering the premium Anthem is paying makes this deal value-neutral at best for its equity holders. Accordingly, we think Cigna's shareholders are receiving an extremely favorable price and the lack of value creation from this deal will be moderately detrimental to Anthem’s intrinsic value. Upon our initial review of the agreement, we are likely to raise our Cigna fair value estimate to reflect Anthem's proposed acquisition price, adjusted for the probability of any antitrust issues. We also plan to lower our $147 Anthem fair value estimate by at least 5%.

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