The Cigna Group and Humana Inc. have seen little movement in their stocks amid reports of a potential merger between the managed care giants.
The two companies are eyeing a deal valued at approximately $140 billion that could be announced before the end of the year, according to a Nov. 29 report from The Wall Street Journal.
But investors have shown little enthusiasm for either stock since the news broke. Between Nov. 29 and Dec. 6, Cigna shares declined 2.05%, while Humana's only ticked up 1% The broader S&P 500 index inched down 0.03% during the same period while the S&P Insurance index was up 0.14%. Through midafternoon on Dec. 8, Humana was also in negative territory, off 1.4% from Nov. 29.
The declines contrasted with Humana and Cigna's three largest competitors, all of which posted gains in the week after the deal rumor appeared. Growing by 5.6%, Centene Corp. saw the most substantial rise, while Elevance Health Inc. and UnitedHealth Group Inc. were up 2.8% and 2.7%, respectively.
While a deal between the two health insurers would be massive, it is not without potential challenges, including regulatory hurdles, said Francesca Massarotti, an associate at S&P Global Ratings for Healthcare and Consumer Products.
One potential reason for the apparent investor skepticism is the length of time it would take to complete such a deal. The merger between UnitedHealth and Change Healthcare, for instance, was a lengthy process that took years to finish due in part to attention from the Department of Justice, Massarotti noted.
"That deal took two years to accomplish, so just thinking of size the pressures are there as well," Massarotti said. "We're also under one [US presidential] administration now, who knows how long it could take if the deal were to spill into another."
Cigna and Humana appear to have been gearing up for a merger for a while, according to Blake Madden, a healthcare commentator and publisher of the weekly Hospitalogy newsletter.
"Back in February, Humana announced plans to exit the commercial market, presumably to go all-in on Medicare Advantage at the time," Madden wrote. More recently, Cigna was rumored to be looking at getting rid of its Medicare Advantage segment.
A potential deal would complement both businesses, J.P. Morgan analyst Lisa Gill wrote in a research note. Beyond the regulatory scrutiny, the companies would still have to wrestle with elevated medical cost trends, which have plagued managed care insurers in 2023, Gill said.
"Any material uptick in trend could adversely impact operating income," the analyst said.
Another agency deal for Gallagher
In other news, Arthur J. Gallagher & Co.'s shares dropped despite completing its acquisition of The Evans Agency LLC from Evans Bancorp Inc.
The insurance broker closed the acquisition Dec. 4, distributing $35.6 million in cash to The Evans Agency and placing $2.0 million in a third-party escrow account as security for the indemnification obligations of Evans Bancorp and The Evans Agency. Additionally, Gallagher will hold back $2.4 million of the purchase price, payable following the second anniversary of the closing of the transaction based on the performance of certain customer accounts.
Through the noon hour on Dec. 8, Gallagher's stock price was down about 3.3% on the week. Gallagher has been among the most active brokerages in the M&A space during 2023, buying banks' insurance units as they seek to exit the space.