(Bloomberg) — A breakup of Anthem Inc.'s $48 billion bid for Cigna Corp., under scrutiny by U.S. antitrust regulators, could spark new deals for smaller health plans in a continued wave of industry consolidation.
Smaller insurers could become targets for Cigna, including WellCare Health Plans Inc., Centene Corp. and Molina Healthcare Inc. Anthem, meanwhile, may chase after assets that might be sold by industry rivals Aetna Inc. and Humana Inc. as they seek approval for their $35 billion tie-up.
The Justice Department has told Anthem that its planned purchase of Cigna threatens competition and probably can't be fixed by selling parts of their businesses, according to people familiar with the matter. With shares down and cash in hand, each could be pushed quickly toward alternative transactions if the deal falls apart, according to Ana Gupte, an analyst at Leerink Partners.
"Cigna has a very strong balance sheet so they need to deploy that and grow and offer upside to their stock," said Gupte, who gives Anthem's acquisition of Cigna less than a 50 percent chance to win regulatory approval. Anthem might need an acquisition to ward off a drop in earnings next year, she said.
Anthem and Cigna declined to comment. Earlier this week, Anthem said the companies continue to be in talks with regulators about what it called their "compelling combination."
Threatens Competition
During a meeting Friday with the companies, the Justice Department indicated that it's open to proposals from the firms to address the problems, according to people familiar with the matter. Still, the regulators' skepticism that the deal can be fixed raises the chances that the U.S. will sue to block it, as soon as next month. The Justice Department didn't comment.
Aetna declined to comment on potential sales of its units.
"Right now, we are focused on completing our combination with Humana and maximizing the many benefits that will result from it," Matthew Clyburn, an Aetna spokesman, said by e-mail.
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'Room to Move'
Cigna is trading below its share price before the deal speculation heated up, indicating that investors doubt the purchase, announced almost a year ago, will proceed. The stock declined 12 percent this year to $128.83 as of Wednesday's close, after trading above $170 in June 2015. The shares dropped 1.9 percent to $126.89 at 10:45 a.m. in New York. Anthem fell less than 1 percent to $131.06 and had lost 5.7 percent this year as of Wednesday's close.
If the Justice Department sues to block the deal, Anthem and Cigna could be required to mount a fight in court. However, opting to end their deal would free them to pursue other acquisitions, Peter Costa, an analyst at Wells Fargo & Co., said Thursday in a research note.
