Cigna to Take over HealthSpring to Expand Medicare Business

October 25 00:00 2011

New York, October 25 ( – Cigna Corp, the fifth largest US insurer, is planning to take over Healthspring Inc., a health-maintenance organization for $3.8 billion in cash. This move will increase the number of Medicare customers it serves threefold. Healthspring investors will receive $55 a share, which represents a 37% premium over Healthspring’s Oct. 21 closing price. The merger is expected to close sometime in the first half of next year.

This pairing of companies is seen as a smart move that will not only diversify Cigna’s revenue stream but will also strengthen its already strong profit projections for 2012 and beyond. Dave Shove, an analyst with BMO Capital Markets said, “It is a good name that will generate solid earnings growth with or without the Healthspring deal and in this market that is not easy to find.”

Cigna has raised its 2011 earnings-per-share projection to $5.05 a share to $5.30 per share from its increased August view of $4.95 a share to $5.25 a share. U.S. health care operations provide Cigna with 70% of its revenue and the majority of this business is employees who self-insure, which implies that Cigna is paid to manage their plans and does not have to shoulder any risk.

Cigna’s smallest yet fastest growing source of income is its international business, especially in China and Turkey.