Cigna rallies 12% after ending Humana deal talks, approving new $10B buyback
Cigna Group (NYSE:CI) has reportedly abandoned its pursuit of a merger with Humana (NYSE:HUM) after facing shareholder resistance to the proposed deal, which aimed to create a health-insurance giant worth around $140 billion.
The companies failed to reach an agreement on price and other financial terms, according to the Wall Street Journal report.
Cigna, now focusing on smaller acquisitions, experienced a nearly 10% drop in its stock since the talks surfaced.
Instead of the merger, Cigna announced plans for an additional $10 billion in stock buybacks, bringing its total repurchases to $11.3 billion.
«We believe Cigna's shares are significantly undervalued and repurchases represent a value-enhancing deployment of capital as we work to support high-quality care, improved affordability, and better health outcomes,» said David M. Cordani, Chairman and Chief Executive Officer.
Since the initial report of considering a sale of its Medicare Advantage business, Cigna stock has fallen approximately 16%. This decline followed speculation that such a move was a precursor to a potential merger with Humana.
Along these lines, Cigna shares rose more than 12% on the latest WSJ report while Humana stock added 2.3% in pre-market Monday.
Analysts from Jefferies said walking away from the deal is “a short term win for CI investors.” The firm upgraded shares to Buy from Hold with a new price target of $341 per share.
“Regardless of the reason, taking advantage of a negative reaction to deal reports by directing almost all FCF toward buybacks is music to CI holders' value-sensitive ears,” analysts from Jefferies said in a note.
“We see shares climbing back to a post-3Q valuation which is +20% from $259/share, but an extension above that
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