What's going on?

American health insurer Cigna announced on Thursday that it�s agreed to buy Express Scripts in a deal worth over $67 billion. It�s the latest mega-merger in the American healthcare space.

What does this mean?

Express Scripts is a �pharmacy benefit manager� (PBM), which means that it helps companies manage their employees� health benefits by acting as a middleman and negotiating bulk discounts from drugmakers. In this sense, the deal resembles CVS’s $69 billion acquisition of insurer Aetna, last year�s biggest corporate deal, as CVS also acts as a PBM. A number of big health insurers have been combining with PBMs recently � partly so that they can cross-sell services.

Why should I care?

For markets: Cigna�s shareholders were nooot happy with the deal.

Cigna�s stock fell about 11% on Thursday, while Express Scripts� rose more than 8% (largely because Cigna has agreed to pay a significant premium to Express�s stock market valuation in order to take it over). One of the issues is that the potential “synergies” don�t appear to be that big � worth less than the premium that Cigna has agreed to pay! The outlined synergies, to be fair, only include administrative savings (like having one finance department) and not �growth synergies� (e.g. cross-selling). So while there�s certainly a risk that the merger doesn�t go well, investors may not be giving enough credence to the growth plan.


The bigger picture: Heavily indebted companies court danger as interest rates rise (tweet this).

Both CVS and Cigna are financing their huge acquisitions by borrowing billions of dollars. On Wednesday, CVS successfully issued over $40 billion of bonds to investors, the third-largest corporate bond deal in history. Both companies intend to use profits to pay down some of that debt relatively quickly, but such highly �leveraged� companies are risky, especially if interest rates keep going up (as they�ll have to borrow funds at higher rates in the future if they can�t pay off their debts with profits).