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Health insurer Cigna to look for M&A targets if Anthem deal fails

(Reuters) – Health insurer Cigna Corp reported a lower-than-expected quarterly profit due to losses in its group disability and life business, and said it would look at acquisition targets if its proposed takeover by Anthem Inc did not materialize.

U.S. antitrust authorities have sued to block Anthem’s $54.2 billion acquisition of Cigna as well as Aetna Inc’s bid for Humana Inc, saying the deals will reduce the number of big national insurers to three from five, hurting competition, inflating prices and stifling innovation.

If the deal falls through, Cigna will have more than $5 billion in cash, which it will use to finance deals and share buybacks and to invest in its core business, the company said on a post-earnings call on Friday.

Should the U.S. Justice Department succeed in blocking these deals, smaller mergers and acquisitions could follow, analysts have said.

The most obvious targets are mid-sized players in government healthcare plans, such as Centene Corp, Molina Healthcare Inc and WellCare Health Plans Inc.

Cigna’s shares, which have fallen about 12 percent since the Anthem deal was announced in July last year, slumped as much as 6.4 percent in morning trading on Friday.


Cigna slashed its full-year forecast for adjusted income from operations to $7.75-$8.10 per share from $8.95-$9.35, saying it expected medical costs to rise further.

In the second quarter, medical loss ratio – the percent of premiums spent on claims – rose to 78.8 percent in its commercial business from 77.5 percent a year earlier.

Like larger rivals UnitedHealth Group Plc and Anthem, the company was hurt by losses in its individual insurance business, which sells plans under Affordable Care Act, or Obamacare.

Cigna said its group disability and life insurance business recorded a loss following modifications to its claims management process implemented earlier in the year.

Cigna said shareholders’ income fell 13 percent to $510 million, or $1.97 per share, in the quarter ended June 30.

Excluding items, the company earned $1.98 per share, well below the average analyst estimate of $2.39, according to Thomson Reuters I/B/E/S.

Total revenue rose nearly 5 percent to $9.96 billion, but missed the average estimate of $9.97 billion.