Cigna Raises Funds to Buy HealthSpring - Analyst Blog
17 Novembro 2011 - 2:30PM
Zacks
In order to fund the purchase of HealthSpring
Corp. (HS), CIGNA Corp. (CI) is in the
process of raising equity
capital. On Wednesday, the company announced the issue of 15.2
million shares of its common stock at $42.75 each.
The proceeds from the
offering will however, fund only a portion of the total deal value
of $3.8 billion. The remaining requirement will be met from a mix
of both long and short tem debt. To this effect, the company has
obtained a bridge loan of $2.5 billion from
Morgan
Stanley (MS).
The acquisition was
announced by Cigna last month. HealthSpring’s vast Medicare
business with its trusted brand name makes its a good fit for
Cigna, which intends to foray into the rapidly growing Medicare
Advantage business. With this acquisition, Cigna will be able to
access 800,000 Medicare prescription customers and 340,000 Medicare
advantage customers.
Cigna, the fourth largest
health insurer in U.S., had been historically biased towards
commercial business (primarily self funded) and had been averse
towards government business (Medicare and Medicaid). But it is now
targeting the government business. The shift in strategy stems from
the fact that the expected demand for Medicare Advantage products
will be huge in the upcoming years.
A look at the Balance Sheet
shows that Cigna ended third quarter 2011 with $3.2 billion in
debt, representing a moderate debt ratio of approximately 29%. The
ratio will, however, go northwards after the HealthSpring
acquisition. But the insurer is generating strong cash flow quarter
after quarter, reflecting impressive returns on capital in each of
its business segments.
Despite funding 80% of the
deal with debt, we
CIGNA CORP (CI): Free Stock Analysis Report
HEALTHSPRING IN (HS): Free Stock Analysis Report
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