Icahn raises white flag in Cigna-Express Scripts tiff

Tony Abraham@TonyAbraham

Aug. 14, 2018

Dive Brief:

• Activist investor Carl Icahn has given up his fight to block Cigna's proposed $67 billion acquisition of Express Scripts. Icahn just last week warned shareholders that the deal was among the "worst acquisitions in corporate history" in an open letter. 
• Cigna responded to Icahn's criticism with a lengthy defense. In its response, Cigna called Icahn's opposition "misguided and short-sighted" and said it "demonstrates a clear lack of understanding of the dynamics of the healthcare industry." 
• Icahn reportedly abandoned his crusade after shareholder advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co. came out in support of the deal last week. Icahn currently holds 0.56% of Cigna stake. 

Dive Insight:

Icahn's last minute attempt to kill Cigna's acquisition of Express Scripts was "an interesting wrinkle" in the deal's development, but "too little too late," as predicted by Jefferies analysts.

While the battle had reportedly been in the works for some time, similar attempts to block deals have typically begun much earlier, such as Icahn's recent success in nixing the Fujifilm and Xerox merger earlier this year. 

Icahn had raised three primary arguments against the acquisition in his open letter to Cigna shareholders: The insurer is paying too much, it would be diving directly into a risky sector embroiled in a political debate over drug pricing, and would soon have to face off with Amazon, which is gearing up to take the industry by storm. 

Instead, the activist investor proposed an alternative to the acquisition: That Cigna engage in a multi-year partnership with Express Scripts (or another PBM) until those regulatory and competitive concerns are ironed out. 

While less colorful than Icahn's open letter, Cigna's response addressed Icahn's concerns directly. 

"This will position Cigna to deliver differentiated immediate and long-term value to our shareholders in the form of strong EPS accretion, significant free cash flow generation and exceptional financial flexibility in a highly dynamic marketplace," the letter reads. "We believe that this delivers much more substantial value than a quick financial engineering scheme for the benefit of a singular, transitional investor, who claims to own only 0.56% of Cigna’s outstanding common stock."

Cigna shareholders are scheduled to vote on the Express Scripts acquisition Aug. 24.

https://www.healthcaredive.com/news/icahn-raises-white-flag-in-cigna-express-scripts-tiff/530055/