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Here’s What the Street Thinks About the Express Scripts Holding Company (ESRX) Acquisition


Express Scripts Holding Company (NASDAQ:ESRX) investors are busy throwing a party this morning, following the news that health insurance giant CIGNA Corporation (NYSE:CI) intends to acquire Express Scripts for $67 billion, in a combination of cash and stock.

Express Scripts CEO Tim Wentworth stated, “First and foremost, we believe this transaction delivers attractive value to the Express Scripts shareholders […] Together, our two organizations will help make the healthiest choices the easiest choices, putting health and pharmacy services within reach of everyone we serve. Adding our company’s leadership in pharmacy and medical benefit management, technology-powered clinical solutions, and specialized patient care model to Cigna’s track record of delivering value through innovation, we are positioned to transform healthcare. We will continue to have a distinct focus at Express Scripts and eviCore on partnering with health plans, and together, build tailored solutions for health plans and their members. Importantly, this agreement is a testament to the work of our team and their resolute focus on providing the best care to patients, and the most value to clients.”

In the wake of the announcement, Oppenheimer analyst Mohan Naidu is out with a research note on ESRX, noting: “ESRX was the last large stand-alone PBM after UNH’s acquisition of Catamaran and CVS’s ongoing transaction to acquire Aetna. We believe this is part of the broader push to vertically integrate from the health plan to health care delivery and partly due to continued fear of the AMZN threat. The vertically integrated model offers better defensibility against a potential AMZN threat as the combined entity can drive the health plan design to ensure incentives for in-network usage. And we believe the PBM portion of the Rx management is likely to be the first to be disrupted as the stepping-stone if/when AMZN enters. The acquisition is expected to close by the end of this year. We believe this is a good outcome for ESRX.”

Cantor analyst Steven Halper gave his own two cents about the deal, adding UnitedHealth Group Inc (NYSE:UNH) to the equation: “ESRX is poised to lose the Anthem contract in 2020 as ANTM is partnering with CVS Health. Cigna had previously signed a 10-year outsourcing contract with Catamaran in 2013, which was subsequently acquired by UNH in July, 2015. At the time, there was speculation that Cigna would exercise a change of control provision and exit the contract with Catamaran/ OptumRx. However, Cigna was enmeshed in the ANTM merger and we assume it did not exercise its change of control provision. Assuming the contract remains in place and ESRX is acquired by CI, we assume that Cigna would insource its PBM beginning in 2023. Obviously, we are not aware of the exact terms of the OptumRx/Cigna contract and if any exit clauses exist in future periods. By combining medical and pharmacy benefits, we believe payers gain better understanding in care management and patients receive higher quality of care. Assuming the contract remains in place until 2023, we do not believe that the CI/ESRX combination would be a material negative for UNH.”