After Wall Street balks, Cigna calls off Humana merger and instead is set to buy back up to $11.3 billion of its shares in gift to investors

If you had any doubt about how Wall Street runs our health care system, look at what is happening to Cigna’s stock price today, just 24 hours after the company said it had called off talks to buy Humana — and instead will reward its shareholders through a massive buyback of the company’s shares. 

The stock price is soaring today to heights it hasn’t reached in months.

As readers of this newsletter know, I broke the news on Nov. 28 that the two companies were in talks to combine in some way. The next morning, the Wall Street Journal and other media outlets confirmed that news. It became clear immediately that investors hated the idea. Many dumped some or all of their shares, leading to a massive selloff of both companies’ shares. 

Cigna’s stock price closed at $284.74 on Nov. 28. It nosedived to $261.64 — its lowest price in nearly six months — by the end of trading the next day on the New York Stock Exchange. Humana’s shares also took a big hit, falling from $510.45 to $482.41 in 24 hours. By 4 p.m. EST on Nov. 29, the companies had seen $12 billion of their market capitalization vanish into thin air. 

I’m sure that was not the reaction Cigna and Humana executives expected. The deal seemed to make sense, although getting approval from regulators would have been a challenge. Cigna, which has always been a relatively minor player in the lucrative Medicare Advantage business, would join the MA big leagues. And Humana, which doesn’t have much of a presence in the equally lucrative business of being a middleman in the pharmacy supply chain, would become part of a company that has been a leader in the pharmacy benefit space since it bought Express Scripts five years ago. 

It’s likely the companies didn’t have their talking points put together by the time we broke the news. Clearly, their CEOs, CFOs and investor relations teams were not able to convince their shareholders over the course of a week that a union of the companies would benefit them. 

Executives of for-profit insurers view shareholders as their most important stakeholders, so they knew they had to act quickly to stop the bleeding. Since top health insurance company executives are paid primarily in stock, they had a very personal reason: their net worth was declining rapidly.

So Cigna took the very unusual step of issuing a press release on Sunday (Dec. 10) to announce plans to allocate an additional $10 billion to its share repurchase program over the coming months. I encourage you to read the release to see how a company panders to Wall Street in such a time of need. For one thing, you’ll notice that it makes no mention of any recent unpleasantness. The word “Humana” is nowhere to be found. That’s because the company didn’t “announce” the proposed merger as it would have if it could have controlled the timing of the news. Instead, it just confirmed to Wall Street Journal reporters that what I had written was true. 

What you will find in the press release is the kind of jargon-laden word salads I used to write when I was Cigna’s chief spokesman. The release makes little sense to anyone but an investor or Wall Street financial analyst. 

Here are the first two paragraphs of Cigna’s release:

Global health company The Cigna Group (NYSE: CI) today announced that its Board of Directors has approved an aggregate increase of $10 billion in incremental share repurchase authorization, bringing the company's total share repurchase authority to $11.3 billion. The company intends to use the majority of its discretionary cash flow for share repurchase in 2024. The company expects this to include repurchase of at least $5 billion of common stock between now and the end of the first half of 2024, with a portion of this repurchase to be executed via an accelerated share repurchase program conducted in the first quarter of 2024.  

“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, The Cigna Group. "As we look at the broader landscape and the strategic opportunities before us, we will remain financially disciplined with a clear focus on executing against our strategy, delivering value for our shareholders, and investing in our future. In light of the current environment, we will consider bolt-on acquisitions aligned with our strategy, as well as value-enhancing divestitures." 

Translation: We heard you loud and clear. You reminded us you’re in this for the money and you didn’t think the big thing we aren’t mentioning would have made you richer. So instead of doing that thing, we’re going to throw additional billions your way by buying back a boatload of our shares, which as you know will increase the value of every share you own. Yay! We’ll all be worth so much more. We’ll tell you later what we might bolt on and get rid of but don’t worry, we won’t screw up again. 

It’s worth noting that investors have not been particularly happy with Cigna all year. The company’s share price reached a 52-week high of $340.11 on Dec. 13, 2022, and it’s been on a general decline ever since, dropping almost $100 a share, to $240.50, by May 30 of this year. It had been slowly climbing back up until investors learned of the proposed Humana acquisition. Then it began tanking again. Cigna’s top execs and board clearly felt they had to act with a sense of urgency to keep the stock from going any farther in the wrong direction. 

The number of shares Cigna says it will buy back in the coming months is likely unprecedented in the company’s history. During the first nine months of this year, the company bought back $1.6 billion worth of shares. In the 15 years between June 30, 2007 and Dec. 31, 2022, it bought back a total of $23.5 billion. That’s an average of about $1.6 billion a year. The company’s press release implies that it will buy up to $11.3 billion worth of its shares before the end of 2024.

Keep in mind that this will only benefit shareholders. It will do nothing to slow the constant increase in premiums and out-of-pocket requirements. It will not improve access to care or the quality of care people enrolled in Cigna’s health plans receive. There is no mention of what the company might be contemplating that might improve the lives and financial well-being of people enrolled in Cigna’s health plans. That’s because the CEO, CFO and investor relations people at big for-profit health insurers rarely if ever talk about such things. In the 10 years that I handled financial communications at Cigna, I don’t recall a single conversation along those lines.

But Wall Street doesn’t care about any of that. As I write this, investors rushing to buy Cigna stock have increased the value of each share by nearly $43. That’s an increase of more than 16% since the market opened this morning. 

Humana, on the other hand, is not doing so well. Its investors are still in a gloomy mood. The stock has declined in value since news of the Cigna deal broke and is down an additional $3 a share so far today. There is no new press release on the company’s website. We’ll keep you posted on what Humana execs decide to do to try to get back in Wall Street’s good graces.