Cigna Secures DOJ Approval for $52 Billion Acquisition of Express Scripts

On September 17, the Antitrust Division of the U.S. Department of Justice approved Cigna’s $52 billion acquisition of Express Scripts.

Cigna and Express Scripts stated in a press release that they have obtained approval from insurance departments in 16 states and are working with regulators in other states to secure the necessary approvals.

A six-month review conducted by the U.S. Department of Justice found that, due to Cigna’s small-scale PBM business nationwide and the market positions of other PBMs in the industry, the merger was “unlikely to harm competition or consumers.”

The timeline of the transaction is as follows: On March 8 this year, both parties signed the merger and acquisition agreement, which was approved by the board of directors; on August 24 this year, the transaction received approval from shareholders of both parties. The transaction amount has been fluctuating, initially standing at $67 billion, then adjusted to $54 billion, and currently at $52 billion. Investor Carl Icahn attempted to participate in the deal between the two parties but withdrew in early August.

Cigna is one of the largest commercial insurers in the United States, providing healthcare and insurance services to individuals and institutions across the U.S. and globally. Its revenues for the three-year period from 2015 to 2017 were $37.88 billion, $39.67 billion, and $41.62 billion, respectively, with net incomes of $2.09 billion, $1.87 billion, and $2.24 billion, respectively.

ESI Group, fully known as Express Scripts, is the largest pharmacy benefit manager (PBM) in the United States. According to its 2016 annual report, it covered more than 95% of retail pharmacies nationwide, with annual revenue reaching $100.2 billion and net profit of $3.4 billion.

“We are pleased that the Department of Justice has approved our settlement, bringing us one step closer to completing the merger. The combined company will provide customers with greater choice, more affordable services, and enhanced predictability,” said David Cordani, CEO of Cigna.

Market analysts have linked Cigna’s deal with Express Scripts to CVS Health’s acquisition of Aetna. The CVS-Aetna transaction, disclosed in late last year, also requires approval from the U.S. Department of Justice’s Antitrust Division.

The U.S. pharmaceutical retail industry is currently characterized by a duopoly. While CVS trails Walgreens Boots Alliance in terms of store count and retail scale, its total revenue exceeds that of Walgreens Boots Alliance. According to CVS’s 2016 annual report, the company operated more than 9,700 pharmacies nationwide, 1,100 of which were equipped with “MinuteClinic” facilities, and its Pharmacy Benefit Management (PBM) business served nearly 90 million members.

In 2016, CVS’s revenue reached $177.526 billion, a 15.8% increase from 2015; its net profit was $5.319 billion, up 1.5% from 2015.

Aetna is one of the oldest health insurance companies in the world. According to Aetna’s 2016 annual report, its revenue for 2016 was $63.155 billion, a 5% increase from 2015; net income was $2.271 billion, a 5% decrease from the previous year. The same 2016 annual report also stated that Aetna had 23.11 million health insurance members.

Whether it is Cigna and Express Scripts, or CVS and Aetna, these cases have demonstrated to the industry the potential for horizontal integration across the pharmaceutical supply chain. There are significant synergies between insurance providers and pharmacy benefit managers (PBMs). If integrated into a unified entity, such combinations could exert greater leverage over the pharmaceutical manufacturing sector upstream, while delivering more comprehensive and centrally managed services to corporate and individual clients downstream.

Following the U.S. Department of Justice’s approval of Cigna’s acquisition of Express Scripts, CVS Health’s deal with Aetna may also see positive developments.

Other analyses suggest that the pursuit of mergers between insurance companies and pharmacy benefit managers (PBMs) is closely related to recent changes in the U.S. pharmaceutical market. First, pressure to control healthcare costs and lower drug prices has intensified, compressing industry profits to unprecedented levels. Second, capital from companies such as Amazon, Berkshire Hathaway, and JPMorgan Chase has crossed traditional boundaries to enter the fields of insurance, pharmaceutical retail, and healthcare services, leading to increasingly fierce market competition.

The M&A activity in the U.S. market offers a key insight for Chinese enterprises: horizontal integration within the industry is often more attractive than vertical integration. Although China’s commercial health insurance and pharmacy benefit management (PBM) markets are not yet mature, the pharmaceutical retail sector has already exhibited characteristics of capital-driven operations. If retail pharmacies can seize this opportunity to strategically position themselves in commercial health insurance and PBM services ahead of time, they will unlock significant growth potential in the future.