Cigna (CI -1.6%) plans to sell 15M shares to help fund its pending $3.8B deal to acquire Medicare carrier HealthSpring (HS). Cigna earlier this month sold $2.1B of debt, and the equity issuance at Tuesday’s closing price would bring in ~$750M.
SXC Health Solutions (SXCI) -23.8% premarket following news that customer HealthSpring (HS) will be acquired by Cigna (CI). SXCI could be negatively impacted by the deal due to its relationship with HS, which could be in danger since CI likely would provide the same services.
More on Cigna (CI +2.9%) / HealthSpring (HS +34%) deal: Cigna will pay about $3.8B to buy HealthSpring in an acquisition that boosts Cigna's Medicare Advantage ops. The $55/share price represents a 37% premium over HS's Friday close of $40.16. (PR .pdf)
Humana (HUM +4.4%) and HealthSpring (HS +5.3%) both rack up gains after Oppenheimer ups the Medicare Advantage-focused health insurers to outperform. The firm cites a favorable outlook for the program's growth, especially as the baby boomers continue to favor MA plans over traditional fee-for-services. Additionally, both companies should see a market share boost due to this year's open enrollment, which starts Saturday.
Health insurers are trading higher after Citi's Carl McDonald bumps six of them to Buy. It's about costs - at a normal level overall, and more expensive inpatient volumes are down, he says, which delivers "big earnings upside over the next couple quarters" if it sticks. AET +1.8%; CI +1.1%; CVH +0.8%; HS +3.1%; UNH flat; WLP +1.5%.
Humana (HUM +3.9%) is the biggest benificiary from Friday's unexpectedly generous 1.6% rise in 2012 Medicare Advantage rates, according to the CMS's preliminary figures. Analysts expected rates to drop by as much as 3%. Other companies with MA exposure include HS +2.8%, HNT +0.5% and UNH +0.4%.
HealthSpring (HS) says it will acquire privately held Bravo Health, a Medicare plan operator, for $545M to expand into the Philadelphia market. JPMorgan (JPM) and other banks will put up $400M in cash to fund the deal, which HealthSpring expects will add $0.45-0.55 to its EPS in 2011.
Shares of UnitedHealth (UNH -1.9%), Humana (HUM -2.0%) and HealthSpring (HS -1.2%) are lower, as the government is expected to announce cuts of as much as 4% in Medicare Advantage payments to health insurers. "We cannot see an outcome, even with flat rates, that leads to earnings growth," says one analyst.