Following a week in which Cigna and activist investor Carl Icahn verbally sparred with one another, the insurer won key support from several independent firms that backed an increasingly scrutinized deal with Express Scripts.
On Friday, a day after Cigna accused Icahn of opposing the acquisition to “support his own personal agenda,” the insurer secured support from Institutional Shareholders Services (ISS), an independent proxy advisory firm, which recommended shareholders vote for the deal.
While ISS acknowledged that the landscape for pharmacy benefit managers has “shifted significantly” since the deal was announced in March, the advisory firm said the benefits of the merger generally outweigh the risks, and called the $600 million in expected synergies a “conservative" estimate.
“That the PBM landscape has become less attractive since the deal was struck implies that the deal is perhaps less appealing (or more expensive) to Cigna shareholders than it may have been in March," ISS wrote in its analysis. "Nonetheless, the proposed merger is a financially compelling transaction that gives the combined company immediate scale with strong cash flow generation."
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ISS also acknowledged that Icahn’s concerns about Amazon’s entry into the pharmaceutical industry are not without merit, but analysts said the potential threats from the administration are much more focused. If rebates were to be removed entirely, it would reduce Express Scripts’ net income by 5.9% in 2019 and as much as 8.4% in 2021.
“Although PBMs are under growing pressure and scrutiny, it seems reasonable to assume that [Express Scripts] will not suddenly lose all leverage to reduce drug prices, especially given its strong focus on specialty drugs, a major contributor to rapidly rising healthcare costs,” the ISS report stated.
On Friday, Bloomberg reported that Cigna also got the backing of another independent advisory firm, Glass Lewis, which urged shareholders to vote in favor of the deal.
Glenview Capital Management, a long-time investor in the insurer, also threw its support behind the deal. The investment firm, which controls $1.3 billion split evenly between Cigna and Express Scripts, pointed to a longstanding trust in CEO David Cordani that has produced 21% or greater annual shareholder returns in his last eight years leading the company.
“Sensationalist headlines and intentionally misleading assertions from those with conflicting interests and limited analysis should not carry more weight than balanced diligence,” the firm wrote in a letter that called out Icahn by name.
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Support for the merger came after a week in which Icahn staged a late revolt against the deal, calling it “inexplicably ridiculous” in a second letter to shareholders on Thursday. Cigna countered, accusing Icahn of spreading “innuendos and false information about the transaction.”
“We believe that his last-minute, ill-founded campaign is motivated by a desire to profit off of his stated ‘substantial short position’ in Express Scripts by leveraging his recently acquired 0.56% ownership stake in Cigna, despite the value destruction that would result for other Cigna shareholders,” the insurer wrote.