Shares of Cigna Group (NYSE: CI) were up 16.6% as of 1:30 p.m. ET Monday after the health insurance giant reportedly called off its potential acquisition Humana and announced a $10 billion buyback instead.
Cigna and Humana couldn't come to terms
The Wall Street Journal reported late last month that Cigna and Humana were in merger talks that would have resulted in a $140 billion health insurance industry juggernaut. But investors balked at the prospect of the combination -- particularly with the potentially dilutive cash-and-stock nature of such a deal -- and shares of Cigna had plunged more than 10% as of Friday's close since news of the talks broke.
According to people familiar with the situation over the weekend, however, Cigna and Humana simply couldn't agree on specific financial terms. As such, they've abandoned the merger talks altogether.
What's next for Cigna stock?
Indeed, in a press release issued on Sunday, Cigna announced its board of directors has approved a $10 billion increase to its existing share repurchase authorization, bringing the total authorization to $11.3 billion. The company says it will "use the majority of its discretionary cash flow for share repurchase in 2024," including the repurchase of at least $5 billion of common stock between now and the end of the first half of next year.
In lieu of the blockbuster Humana acquisition, and "in light of the current environment," Cigna chairman and CEO David Cordani added that the company will consider both "value-enhancing divestitures" and smaller bolt-on acquisitions aligned with its strategy going forward.
Finally, Cigna reaffirmed its previous outlook calling for full-year 2023 adjusted income from operations of at least $24.75 per share. Cigna also continues to target adjusted operating income of at least $28 per share in 2024.
In the end, shareholders are breathing a sigh of relief that Cigna is no longer considering diluting existing investors to fund a massive acquisition, but rather doing the opposite by repurchasing a significant chunk of shares.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
