Anthem poised to acquire Cigna in $54.2bn insurance industry megadeal

BY Fraser Tennant

Anthem Inc. and Cigna Corporation have announced that they have entered into a definitive agreement whereby Anthem will acquire all Cigna’s outstanding shares in a transaction valued at $54.2bn - the largest deal ever seen in the history of the insurance industry.

The combined health services company will cover approximately 53 million medical members with well positioned commercial, government, consumer and specialty businesses, along with a market-leading international franchise.

“We are very pleased to announce an agreement that will deliver meaningful value to consumers and shareholders through expanded provider collaboration, enhanced affordability and cost of care management capabilities, and superior innovations that deliver a high quality health care experience for consumers," said Joseph Swedish, president and chief executive of Anthem.

Expected to become an industry leader due to enhanced diversification capabilities, the united companies will utilise their complementary strengths, including Anthem’s Blue Cross and Blue Shield footprint in 14 states (and Medicaid footprint via its Amerigroup brand in 19 states) with Cigna’s US and global portfolio of health and protection services.

Mr Swedish continued: “We believe that this transaction will allow us to enhance our competitive position and be better positioned to apply the insights and access of a broad network and dedicated local presence to the health care challenges of the increasingly diverse markets, membership, and communities we serve.”

Upon close of the transaction, Mr Swedish will serve as chairman and chief executive of the new entity. David Cordani, currently Cigna’s president and chief executive, will take on the role of president and chief operating officer. Additionally, and effective upon close of the transaction, the Anthem board of directors will be expanded to 14 members with Mr Cordani and four independent directors from Cigna’s current board joining Anthem’s.

“Our companies share proud histories and an even brighter future," said Mr Cordani. “Going forward our new company will deliver an acceleration of innovative and affordable health and protection benefits solutions that help address our health system's challenges and provide supplemental insurance protection, and health care security to consumers, their families, and the communities we share with them.”

Cigna’s financial and legal advisers for the transaction are Morgan Stanley and Cravath, Swaine & Moore LLP, respectively. For Anthem, the financial advisers were UBS Investment Bank and Credit Suisse with White & Case LLP serving as legal adviser.

Although the transaction is expected to close in the second half of 2016, regulatory scrutiny may delay consummation of the deal for a year at least. Adding to concerns is Anthem and Cigna’s lower opening on the New York Stock Exchange following the announcement of the transaction - lost ground which both companies may struggle to regain.

News: Anthem to buy Cigna for $54B in mega insurance merger

Trials and tribulations: China's shifting business landscape highlighted in new report

BY Fraser Tennant

The deeper trends reshaping the business and investment environment in China today are the focus of a new report – ‘China 2015: China’s shifting landscape’ – by the boutique investment bank and advisory firm, China First Capital.

As well as highlighting slowing growth and a gyrating stock market as the two most obvious sources of turbulence in China at the midway point of 2015, the report also delves into the deeper trends radically reshaping the country’s overall business environment.

Chief among these trends is the steady erosion in margins and competitiveness among many, if not most, companies operating in China’s industrial and service economy. As the report makes abundantly clear, there are few sectors and few companies enjoying growth and profit expansion to match that seen in previous years.

The China First Capital report, quite simply, paints a none too rosy picture of China’s long-term development prospects.

“China’s consumer market, while healthy overall, is also becoming a more difficult place for businesses to earn decent returns," explains Peter Fuhrman, China First Capital’s chairman and chief executive. “Relentless competition is one part, as are problematic rising costs and inefficient poorly-evolved management systems.” 

“From a producer economy dominated by large SOEs, China is shifting fast to one where consumers enjoy vastly more choice, more pricing leverage and more opportunities to buy better and buy cheaper. Online shopping is one helpful factor, since it allows Chinese to escape from the poor service and high prices that characterise so much of the traditional bricks-and-mortar retail sector. It’s hard to find anything positive to say about either the current state or future prospects for China’s ‘offline economy.’”

Elsewhere in the report there are discussions that provide signals about future growth and profit opportunities in China, including: China’s new rules and rationale for domestic M&A; background on China’s most successful, if little known, recent start-up, mobile phone brand OnePlus; the implications of  shutting out most private sector investment in shale gas; how Nanjing is emerging  as the core of China’s ‘inland economy’; and why the Chinese stock market is currently in such a woeful state. 

“We’re at a fascinating moment in China’s story of 35 years of economic transformation," says Peter Fuhrman. “But it takes more insight and focus to outsmart the competition and succeed.”

Report: China 2015: China’s shifting landscape

Lockheed to buy Sikorsky for $9bn

BY Richard Summerfield

Lockheed Martin Corp announced this week that it had agreed to acquire military and commercial rotary-wing aircraft manufacturer Sikorsky Aircraft from United Technologies Corporation in a deal worth $9bn. The price of the deal will effectively be reduced to around $7.1bn once the tax benefit resulting from the transaction is taken into account.

The transaction, which is subject to the customary closing conditions including regulatory approval, is expected to be completed in Q4 2015 or Q1 2016. “Sikorsky is a natural fit for Lockheed Martin and complements our broad portfolio of world-class aerospace and defence products and technologies,” said Marillyn Hewson, Lockheed Martin’s chairman, president and chief executive in a statement announcing the deal. “I’m confident this acquisition will help us extend our core business into the growing areas of helicopter production and sustainment. Together, we’ll offer a strong portfolio of helicopter solutions to our global customers and accelerate the pace of innovation and new technology development.”

By completing a deal for Sikorsky, Lockheed - the Pentagon’s largest arms supplier - has secured its position as the world’s largest defence company, overshadowing rivals including the defence business of Boeing Co and Northrop Grumman Corp.

Sikorsky manufactures a range of military helicopters, including the Black Hawk, which is utilised by 25 nations for multi-mission support, and the Seahawk, used in marine operations. The company also makes commercial helicopters and fixed-wing aircraft for surveillance and transport missions.

“Exiting the helicopter business will allow UTC to better focus on providing high-technology systems and services to the aerospace and building industries, and to deliver improved and sustained value to our customers and shareowners,” United Technologies president and chief executive Gregory Hayes said in a separate statement.

In addition to the Sikorsky deal, Lockheed also announced a better than expected 4.5 percent rise in quarterly profit this week. The company also said it could spin off or sell its government IT and technical services businesses going forward.

News: Lockheed to buy Black Hawk maker Sikorsky for $9 billion

Celgene and Receptos agree $7.2bn merger

BY Richard Summerfield

On 14 July, Celgene Corp announced that it had agreed to acquire Receptos Inc in a deal worth approximately $7.2bn. The deal continues the trend of major M&A deals in the healthcare sector which has seen more than $250bn worth of M&A since January.

According to the terms of the deal, Celgene will pay $232 per share to acquire Receptos. The agreed price represents a 12 percent premium to the company’s closing price on the day the deal was announced. The transaction was made public after the markets had closed.

By acquiring Receptos, Celgene has gained access to the company’s valuable pipeline of products, most notably its treatment for multiple sclerosis and ulcerative colitis, ozanimod. The drug is currently in late-stage clinical trials with approval possible in 2018 for multiple sclerosis and the following year for ulcerative colitis. According to data from Celgene, ozanimod could generate peak sales of around $6bn annually.

“The Receptos acquisition provides a transformational opportunity for Celgene to impact multiple therapeutic areas,” said Robert J. Hugin, chief executive of Celgene, in a statement announcing the deal.

Celgene too has an impressive portfolio of products, the most prominent of which is the company’s blockbuster cancer treatment Revlimid.

As a result of deal speculation, Receptos has seen its market value nearly double since the turn of the year. AstraZeneca, Gilead Sciences and Teva were all rumoured to be interested in acquiring the company, although none were able to agree a deal.

For Celgene, the acquisition represents business as usual. The company has developed a reputation for M&A transactions to buy up smaller companies or licence their product lines. In 2014, the firm paid $710m to Irish firm Nogra Pharma to gain access to GED-03010, a treatment for Crohn’s disease. In June, the company invested $1bn in Juno Therapeutics, an organisation which manufactures experimental cancer medication.

According to Celgene’s statement, the deal for Receptos will impact the company’s earnings per share up to and including 2017. It will be neutral to earnings per share the following year and add to earnings from 2019 onwards. Celgene intends to finance the deal via a combination of existing cash on hand and new debt. The company intends to raise around $5bn in a bond offering in August.

The deal is expected to close in the second half of 2015.

News: Celgene to buy Receptos for $7.2bn; gains promising drug

Dissension in the ranks: Greek government in fresh turmoil over €86bn bailout deal

BY Fraser Tennant

Following the intense negotiations required to secure the €86bn conditional bailout deal with eurozone leaders, Greek prime minister Alexis Tsipiras now needs to do more tough talking – this time with his own coalition partners.

The first to highlight dissension within the ranks of the Greek government was Panos Kammenos, defence minister and leader of the Independent Greeks party, who likened the deal to that of a coup by foreign leaders. The junior coalition partner has made it clear that he will not support the measures included in the bailout deal.

Mr Kammenos said: “The agreement speaks of 50bn euros worth of guarantees concerning public property, of changes to the law including the confiscation of homes. We cannot agree to that."

The new bailout agreement has also to be approved by parliaments in a number of eurozone states.

Further examples of the strength of opposition in Greece to the terms of the deal include demonstrations at the Greek parliament and the announcement of a 24-hour strike by civil service workers.

“The Greek government made a 360 degree shift after six months of tenuous negotiations and accepted another devastating deal for Greece," says Dimitris Rapidis, a political analyst and director of the think-tank, Bridging Europe. “The government and its prime minister, Alexis Tsipras, grew public expectations immensely and irrelevantly, motivating 61 percent of the electorate to vote ‘no’ in the recent referendum.”

The financing deal agreed for Greece over the next three years (the third such bailout) is on condition that Greece passes all agreed reforms – which include tax revenue, liberalising the labour market, and pension and VAT reforms – by Wednesday 15 July.

Should the four pieces of legislation required not be passed by the Greek government, the deal will fail – leaving Greece’s banks facing a possible collapse and opening the door to the country's expulsion from the eurozone.

Adding to Greece’s short-term crisis is the International Monetary Fund’s (IMF) announcement that the beleaguered country had this week missed a debt repayment (€456m) for the second consecutive month.

“The social and electoral consequences for the Syriza party, and especially for Mr Tsipras himself, will be assessed mid-term,” asserts Dimitris Rapidis. “It’s important to point out that this bailout has no chance to succeed and improve the current economic conditions in Greece as there is no concrete growth plan, there is no commitment to address unsustainable debt and, above all, there is no plan to protect the most vulnerable parts of the society.

“On the contrary, by accepting such a program, Greece moves closer to a Grexit or, worse, to a continuous political instability and social unrest. This government had every chance to shift course, demonstrating a solid social appeal so far, even with bigger geopolitical risks for the country, but it finally chose to apply the same catastrophic recipe.”

Potential Grexit or otherwise, finance ministers from all 28 EU countries are convening on Tuesday 14 July to hold a scheduled meeting in Brussels to discuss the mounting debt crisis in Greece.

News: Eurozone Leaders Reach Rescue Deal for Greece, With Tough Conditions