Cigna Corporation (CI) shares fell more than 10% after the company announced a $67 billion deal to acquire Express Scripts Holding Company (ESRX), including the assumption of $15 billion in debt, while Express Scripts shares jumped more than 8.5% on the day. The merger consideration consists of $48.75 in cash and 0.2434 shares of stock in Cigna per Express Script share, but the deal is subject to regulatory approvals before being consummated.
The merger is widely seen as a response to similar mergers across the health care sector, as well as Amazon.com, Inc.'s (AMZN) move into the health care space in partnership with Berkshire Hathaway Inc. (BRK.A) and JPMorgan Chase & Co. (JPM). The deal could also spur additional M&A in the healthcare space on the part of Walgreens Boots Alliance, Inc. (WBA), UnitedHealth Group Incorporated (UNH) and Humana Inc. (HUM), among other companies. (See also: Buffett, Bezos, Dimon to Found Healthcare Company.)
From a technical standpoint, Cigna stock broke down from key trendline support, the 200-day moving average and both pivot point support levels to lows that haven't been seen since June of last year. The relative strength index (RSI) fell to oversold levels of 21.66, but the moving average convergence divergence (MACD) took a bearish downturn. With the news out of the way, shares are likely to stabilize near $170.00 support levels.
Traders should watch for some consolidation around $170.00 before the stock potentially moves back above S2 support at around $175.06. If the stock breaks down from $170.00, it could move down to the next trendline support level at around $165.00. If the stock rebounds higher, traders should watch for a move to S1 support at around $185.47 or the 200-day moving average at around $188.80 over the coming weeks. (For more, see: What's Behind Cigna's $67B Express Scripts Buy?)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.