Carl Icahn urges Cigna shareholders to vote against ‘ridiculous’ Cigna-Express Scripts deal

Billionaire investor Carl Icahn campaigned Tuesday to scuttle health insurer Cigna Corp’s (NYSE:CI) planned US$54bn purchase of pharmacy-benefit manager Express Scripts Holding Co (NASDAQ:ESRX).

Express Scripts operates a pharmacy benefit management company with large operations in the US and Canada. The company also operates home delivery pharmacies and 34 specialty branch pharmacies.

Icahn said the deal is far too risky, and talked up regulatory hurdles and the “existential threat” St. Louis, Missouri-based Express Scripts faces from Amazon.com Inc (NASDAQ:AMZN).

Icahn, who has a long position on Cigna and a short position on Express Scripts, said in a letter titled “Cigna’s $60 billion folly” that the insurer was overpaying for Express Scripts.

“Cigna is dramatically overpaying for a highly challenged Express Scripts that is facing existential risks on several fronts,” Icahn wrote in a letter to Cigna shareholders.

“When Amazon starts to compete as we believe they will, with their 100 million Prime users and scale distribution system, they will have no trouble breaking into the so-called ecosystem,” added the activist investor.

READ: Amazon throws down the gauntlet by buying online pharmacy PillPack

“Competitive risk from Amazon, arguably the strongest competitor in the world, will be an existential threat to pharmacy benefit managers like Express Scripts, possibly challenging their very existence.”

In June, Amazon made a bold push into the pharmacy business by acquiring online pharmacy service PillPack, which delivers pre-sorted daily medications for consumers who take multiple prescriptions.

CVS Health Corp (NYSE:CVS), Walgreens Boots Alliance Inc. (NASDAQ:WBA), and Rite Aid are already bracing for competition, afraid the Seattle-based e-commerce giant will disrupt the drugstore market in the same way it snuffed out brick and mortar bookstores.

Icahn said Cigna should keep its powder dry and pursue partnerships with existing pharmacy benefit managers, including Express Scripts instead of dabbling in expensive buyouts. Icahn has not disclosed his stake in Cigna, but the Wall Street Journal reported that Icahn and his affiliates own about 0.56% of Cigna, a stake worth more than US$250mln.

Cigna said last week that it was confident of winning shareholder approval for its Express Scripts deal.

“We strongly believe that the combination (with Express Scripts) is in the best interest of our shareholders,” Cigna CEO David Cordani reiterated last week.

The shareholder vote is due on August 24.

Express Scripts shares were down 2% in heavy premarket trade Tuesday after Icahn’s opposition to the deal but rebounded 0.8% to US$77.41 in morning trade. Cigna shares traded flat.

Contact Uttara Choudhury at [email protected]
Follow her on Twitter: @UttaraProactive

Story by ProactiveInvestors