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A potential Cigna Corp.(NYSE:CI) acquisition of Centene (NYSE:CNC) would likely have more issues than reasons to go ahead with a deal, according to Wells Fargo.
"While this could certainly be revisited, at this point we see more potential obstacles than obvious reasons to push forward," Wells Fargo analyst Stephen Baxter wrote in a note on Thursday. "These include relatively modest accretion, CI's historical ambivalence toward Medicaid, the disconnect between CNC's current profitability and long-term earnings power, and antitrust concerns."
The Wells Fargo comments came after Bloomberg late Wednesday reported that Centene (CNC) has received potential takeover interest from Cigna (CI) in recent months. The talks were preliminary and didn't lead to any agreement. Talks aren't currently taking place and its not clear if they will be revived.
A potential acquisition of Centene (CNC) would likely require a 30% premium to its share price, though this may not be enough given CNC's "view that long-term earnings power is significantly above current levels," according to Baxter, who has overweight ratings on Centene and Cigna with price targets of $92 and $278 respectively.
Although the antitrust issues don't appear to be the same as the ones that derailed the Aetna/Humana and Anthem/Cigna deals, antitrust may still prove to be an issue given the Biden administration's view on competition.
Earlier this week the U.S. Federal Trade Commission sued to block Lockheed Martin's (NYSE:LMT) planned purchase of Aerojet Rocketdyne (NYSE:AJRD) and Dept. of Justice antitrust chief Jonathan Kanter said he believes that mergers should be blocked if the regulator finds they lessen competition rather than finding a remedy to salvage a deal.
Centene has gotten attention since the fall after activist Politan Capital Management took a stake in the company and was reportedly pushing the company to replace board members. In December, Centene agreed to add directors, search for new a CEO and entered into a cooperation agreement with Politan Capital Management.
Recall Centene has been targeted by activists in the past. In 2019 Dan Loeb's Third Point and activists Corvex and Sachem Head reportedly encouraged the company to sell itself before consummating its WellCare acquisition.
Cigna is scheduled to release Q4 results Thursday.