Billionaire investor Carl Icahn has urged Cigna Corp. (CI) shareholders to vote against the health insurer’s acquisition of Express Scripts Holding Co. (ESRX), saying that Cigna is “dramatically overpaying for a highly challenged Express Scripts that is facing existential risks on several fronts.”
In an open letter to Cigna’s shareholders titled “Cigna’s $60 billion folly,” Icahn cited a growing competitive threat from Amazon.com and regulatory hurdles as reasons for shareholders to oppose Cigna’s acquisition of the pharmacy benefit manager.
Icahn, who has built a sizable stake in Cigna, also said that Cigna’s investment in Express Scripts “may well rival the worst acquisitions in corporate history.”
In March, Cigna agreed to acquire Express Scripts in a cash and stock transaction valued at about $67 billion, including Cigna’s assumption of about $15 billion in Express Scripts debt.
Icahn argued that competitive risk from Amazon, arguably the strongest competitor in the world, will be an existential threat to pharmacy benefit managers or PBMs like Express Scripts, possibly challenging their very existence.
“When Amazon starts to compete as we believe they will, with their 100 million Prime users and scale distribution system, they will have no trouble breaking into the so called ‘ecosystem.’ With lower prices, the beneficiary will be American consumer, not the owners of Express Scripts,” the activist investor noted.
In addition, regulatory risks due to opposition to the highly flawed rebate system will likely lower Express Scripts’ profitability dramatically, Icahn said.
He noted that the Trump administration is particularly focused on bringing down prescription drug prices for consumers and has specifically targeted PBMs as the part of the supply chain that is over-earning relative to the value they produce.
The billionaire investor advised that Cigna should instead pursue a multi-year partnership with an existing PBM provider, potentially Express Scripts, while the industry resolves the structural challenges.
Icahn also called on Cigna to use the cash portion of the Express Scripts consideration and free cash flow to aggressively repurchase its own shares.
by RTTNews Staff Writer
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