Analyst: the numbers now work for a Humana merger with Cigna

Does the reported Humana Inc. merger with Cigna Group have new life?

Since Cigna reportedly ended its pursuit of a Humana acquisition last year, shares of Cigna are up 38% while shares of Humana have dropped 34%, making the math more attractive for a merger, according to a report Monday from David Windley, managing director of Jefferies’ Healthcare Equity Research team.

The Wall Street Journal reported in November that Cigna and Louisville-based Humana (NYSE: HUM) were in talks to combine in a stock-and-cash deal, according to “people familiar with the matter.” Later though, the companies reportedly couldn’t come to an agreement on price and other financial terms, after Cigna (NYSE: CI) shareholders balked at the proposed acquisition, and the deal died.

As Louisville Business First reported at the time, the deal would have faced scrutiny from regulators, who have moved to block similar health care deals in the past, including one involving Humana in 2015.

But with a seemingly more affordable deal in play for Cigna, Windley’s report says “A [Cigna] acquisition of [Humana] seems plausible,” as long as Cigna doesn’t pay more than $470 per share. Humana stock was trading at $326.24 per share, as of Tuesday afternoon.

When reached by Business First, a Humana spokesperson said that it's the company's policy not to comment on "market rumors or deal speculation." Cigna did not respond to requests for comment.

Humana (NYSE: HUM) is Louisville’s largest public company, according to Louisville Business First research, with $106.3 billion of revenue in 2023. 

Bloomfield, Connecticut-based Cigna reported $180.5 billion of revenue last year, with a market cap of $78.9 billion.

In addition to more favorable financials, Humana executives have worked to make the company easier to acquire since the Cigna deal fell through.

In its most recent proxy statement, Humana outlined a proposal to eliminate an article in the company’s charter requiring it to obtain a vote of stockholders holding three-fourths of the company’s shares to approve a merger or consolidation with another company. That proposal passed at the company’s annual shareholder meeting April 18 by a vote of 96,562,717 to 1,076,542, according to a U.S. Securities and Exchange Commission filing, essentially eliminating the requirement of a supermajority vote of stockholders to complete a merger.

If Humana were to be sold, the company’s executives could come out of it with deeper pockets. In the event of a change in control of the company (a sale), CEO Bruce Broussard could potentially be paid more than $44.6 million, the proxy filing states, including more than $11.2 million in severance, $1.3 million in accelerated stock options and nearly $25 million in accelerated restricted stock units, among other payments. 

You can read more about Humana executive pay here.

If Humana and Cigna were to merge it would create a health insurance behemoth to rival Minnetonka, Minnesota-based UnitedHealth Group.

It also would raise questions about Humana’s future in Louisville, as the company has vacated almost 800,000 square feet of office space in Downtown buildings alone since 2017, according to a 2023 CBRE report. Humana employs about 11,000 people in Louisville and roughly 64,200 in total.

Humana and Aetna Inc. attempted a merger in 2015 before the U.S. Department of Justice sued to block the $37 billion deal, which was ultimately blocked by a federal judge two years later. The Justice Department claimed the merger would decrease competition in Medicare Advantage plans and in commercial individual health care plans on state insurance exchanges.

Cigna and Humana also had talks about a merger in 2015, prior to the Aetna deal.