What's Behind Cigna's $67B Express Scripts Buy?

Amazon.com Inc.'s (AMZN) plans to make waves in the health care space may have just been narrowed by another major deal inked between a health insurer and a pharmacy benefit manager (PBM). On Thursday, Cigna Corp. (CI) announced its acquisition of Express Scripts Holding Co. (ESRX) in a blockbuster $67 billion deal, which will be paid with $52 billion in cash and the rest in debt. (See also: Tax Cuts Prompt Biggest Merger Spree in Decades.)

E-commerce and cloud computing giant Amazon said earlier this year that it was teaming up with Berkshire Hathaway Inc. (BRK.A) and JPMorgan Chase & Co. (JPM) to take on America's broken health care space with an independent company that seeks to offer services to the firms' employees at a lower cost. Upon the announcement, $30 billion in collective market value was wiped from the 10 largest publicly traded health insurance and pharmacy stocks in the U.S.

Shares of Express Scripts have surged over 10% as of Thursday afternoon on the deal, which some on the Street see as spelling equally bad news for Amazon. Many had speculated that Express Scripts, a PBM that negotiates drug benefits for insurance plans employers, could play a role in the joint venture between Amazon, Berkshire and JPMorgan. The deal also takes the option for Amazon to buy Cigna off the table, according to Leerink Partners senior health care services analyst Ana Gupte, as reported by CNBC. If the company ever wanted to get into the health insurance industry, a Cigna takeover would have made sense for the tech titan, according to Gupte. 

Narrowing Options 

"It is possible that the threat of an Amazon entry into the healthcare and possibly the drug supply chain landscape, with the latest news of the Amazon-Berkshire Hathaway-J.P. Morgan employer coalition, has spurred Cigna and Express Scripts to tie the knot," said the Leerink analyst in the CNBC report. 

Amazon and its new venture may have to act fast before all of the best targets are gobbled up and the industry is run by a few major players. Pharmacy retailer and PBM CVS Health Corp. (CVS) in December announced it would buy insurance giant Aetna Inc. (AET) while Walgreens Boots Alliance Inc. (WBA) is reported to be circling drug wholesaler AmerisourceBergen Corp. (ABC). Plus, Amazon will also want to avoid overpaying, given valuations are only getting bigger, as Cigna will dole out nearly nine times Express Scripts 2017 EBITDA for the 32-year-old company. Given current market conditions, if Amazon is serious about its health care push, it might just decide to go all out with a mega-deal, such as a $100 billion bid for Walgreens. (See also: Amazon Launches Its Own Line of OTC Drugs.)

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